Dear valued client,
Optimistic economic news was released this week; U.S. inflation came in at 8.3% for the month of April, compared to 8.5% in March. This is not a significant decrease, but it is progress nonetheless. It’s also the first time the rate of inflation has dropped in 8 months. On the labor front, unemployment figures have stabilized around 3.5%, which was roughly the same level of unemployment seen prior to the pandemic.
Despite the robust economy around it, the market declined this week under the pressure of what I’ve dubbed the Big 4: war in Ukraine, supply chain disruptions, inflation, and interest rates (all 4 factors are strongly interconnected). China continues its stringent COVID lockdown measures in Shanghai, further exasperating supply chain issues, and adding to inflationary worries. The Chinese Communist Party’s zero-COVID policy is having a dramatic impact on the global economy; it is not only a massive market for the world’s goods, components, and raw materials, but it’s a central manufacturing hub several industries rely on.
With the amount of volatility and uncertainty we’ve in the market recently, the question then becomes, how should one manage their investments in a financial climate such as this?
The Wall Street Journal surveyed numerous investment professionals from around the country and released a report with their findings. The report reads, “Chances are your portfolio is taking a beating right now as stock and bond prices fall together, for the first time in decades. Yet the best strategy in moments of volatility like this one, financial advisors say, is also one of the least satisfying: Do nothing.”
Investing is a long-term endeavor. The portfolios we put together are meant to weather nasty financial storms and benefit your future selves 5, 10, 15, 20 years down the road. Many of you also invest monthly which will result in major returns for you down the road as you are buying shares of solid companies for much lower prices.
In addition to stocks and bonds, cryptocurrencies are also taking a hit. Bitcoin’s value has been cut in half since its high of last year.
To close with another remark from the WSJ, “The best protection from this volatility is to have a long-term financial plan and stick with it.”
That being said, if you are anxious because retirement is on the horizon, you have upcoming expenses, or for any other reason, please do not hesitate to reach out and we can discuss your situation.
I also believe it’s useful to maintain some sense of perspective in turbulent markets like these. It’s easy to develop tunnel-vision and feel like there is no end in sight. There is. We’ve been here before.
Here are the last 7 major stock market declines:
2020: -34%
2008: -56%
2000: -49%
1990: -20%
1987: -34%
1980: -27%
1973: -48%
It’s helpful to have a historical context when dealing with these issues. There have been 19 market declines of at least 20% over the past 140 years. They last 289 days, on average, and the mean price decline was 37%. Markets recovered to new all-time highs every single time. Stay patient. Keep the long-term vision.
For those inclined, I’d like to hear your feedback on this quote from Benjamin Graham, one of Warren Buffet’s teachers and mentors. It took me a couple of days to wrap my head around it.
“The intelligent investor realizes that stocks become more risky, not less, as their prices rise – and less risky, not more, as their prices rise.”
Have a terrific weekend.
PW
“It’s in a bear market you make most of your money, you just don’t know it at the time.” – Shelby Davis
