Trisha's Thoughts

"How many millionaires do you know who have become wealthy by investing in savings accounts?

 I rest my case." — Robert G. Allen

As investors we know that we have to expect volatility in asset prices and that values don’t move upward in a straight line. Knowing that and experiencing it are two different things so I know that last year may have been trying. That said, owning quality investments over the long term has demonstrated time and again its ability to reward investors and I have no doubt that we will eventually look back at 2022 and view it in context as simply a normal part of investing.

In that vein, it was nice to see both the stock and bond markets recover some value in the final quarter of the year. For the last three months the global stock market, as measured by the MSCI World Index, gained 9.77% and the Bloomberg US Aggregate Bond Index gained 1.87%. Those gains didn’t offset all of the declines for the year, as these two indexes still fell by 18.14% and 13.01% respectively. Certain types of stocks, such as those in the Nasdaq Composite, were even more adversely impacted, as that index fell by 32.54% in 2022.

As we look ahead the investment markets are very focused on the Federal Reserve raising interest rates to combat inflation and how much of an impact that will have on the economy. So far the US economy has showed surprising resilience to the higher interest rates with the labor market and consumer spending continuing to post better than expected results. At the same time, inflation (which measures the rate of price changes, not the price level – i.e. if prices stay the same then the inflation rate is 0%) has slowed considerably and appears to be poised to continue trending down.

There have been costs of the Federal Reserve’s actions as well. Higher interest rates have contributed to a slowing housing market as mortgage rates rose and there are signs that corporations are cautious near term as they have worked to lower costs, with some even slowing hiring or announcing layoffs.

As the year progresses, we anticipate that the investment markets will continue to be focused on how quickly inflation can come down and what more potential cost higher interest rates will have on the economy. Until there is more clarity as to how this will all impact corporate profits I would not be surprised to see the stock market continue to experience volatility, both up and down. Investors are always forward looking though so in my experience some of the best stock market performance has occurred when people least expected it.

As we review and rebalance portfolios this quarter we continue to anticipate some continued volatility near term but are looking ahead at longer term opportunities in both the stock and bond markets. We believe in the importance of diversification, the value of a regular strategy of rebalancing and the contribution of income toward total return.  We plan to continue with a somewhat more defensive posture and higher amounts of cash in accounts distributing income.

Please do not hesitate to call us if you have any questions or would like to discuss your account or the marketplace in general.  We are always happy to hear from you.

Trisha Arndt

Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties which are difficult to predict.  Past performance is not indicative of future results.  All indices are unmanaged, and investors cannot invest directly into an index.  Diversification does not ensure against market risk.