Markets have certainly given all of us much to think about in recent months. After an astounding recovery from COVID-driven recession to a relatively calm 2021, we have been greeted with volatility, uncertainty, and very bearish sentiment as we wrapped up the first quarter of 2022.

There are always uncertainties and variables in play in the world and markets. However, as we look around the landscape in 2022, it seems to us that the number of variables has increased drastically, as has the range of possible outcomes and effects.

In the communication we are sharing with clients this quarter, we outlined a few of the variables – and provided two opposing outcomes of each, along with the resulting impact on markets (ie: if x happens, this will occur) The variables included: Ukraine/Russia conflict, Inflation, Federal Reserve action, consumer strength and COVID.

After completing that analysis (which we are happy to share – just ask!), it’s easier to understand why markets and investors are perplexed. Both bulls (those who are optimistic about markets/economy) and bears (those who are pessimistic about markets/economy) can make a sound argument supporting their view.

As investors, we have been here before and we will be here again. In times of volatility, we always go back to the same playbook. Here are some things to keep in mind as you evaluate which way to go from here

1.       You have a plan – follow it – if you’re a Windermere client, we have built a financial plan specific to you and your situation.    We’ve taken into account your age, your earnings trajectory, your risk tolerance, your liquidity needs, your life timeline, your goals at various life stages, and many other factors.  We’ve seen the plans work for you and your families for several years.  We have talked about various “what if” scenarios.  We encourage you to remember that and resist the urge to throw that plan away during this time of stress.  Does locking in permanent losses today and fleeing to an asset class that won’t grow and will yield a negative return after inflation (cash) allow you to reach your longer-term goals?  Likely not.

2.       Remember what an investment represents – Fundamentally, an investment is an ownership interest that affords you some future benefits in exchange for your current capital.  A fixed income holding is a promise made (by a business, a government, a municipality, etc.) to repay your principal and a stated rate of interest.  An equity holding is a share of a businesses future cash flow and earnings.  (And an ETF or a mutual fund are a collection of individual fixed income and equity holdings).  Each trading day, the market prices these ownership interests based on countless factors and we can watch their every move on our screens.  But beneath all that noise are businesses – collections of individuals and technologies that are adapting, innovating, planning, strategizing – all in an effort to maximize the return on the invested capital (including yours).  Will recent events such as covid19, energy and commodity price increases, and inflation impact the businesses you own? Most likely.  Will the events be everlasting and permanently impair the businesses and their future ability to advance and grow their capital?  History would suggest this is highly unlikely

3.       All in or all out are NOT investing strategies – If you are engaged in the dangerous exercise of going all-out of the market in times of stress and then planning to go all-in when you believe things have settled down, you are not investing. You are gambling on moments in time. You are trying to be right twice (predicting the bottom as well as the top).  We don’t recommend this practice.  There is too great of a price to pay for getting this impossible task wrong

4.       Bottoms are hard to spot – Continuing with the above message, seeing a top in a market is an impossible feat but I would argue that seeing a bottom is even harder.  Markets often stop going down without a clearly visible event/signal.  Oftentimes, it’s a period where no one felt good about markets and hardly anyone thought we had reached a bottom.  Will history repeat itself exactly? Of course not.  But is it possible that it will “rhyme”?  I believe so.

5.       Not all companies (or indexes/funds) are created equal – Each public company (and each fund/ETF that holds various companies) are unique.  When markets decline seemingly in mass, it is a great opportunity to take stock of all of your positions, evaluate if there are some you don’t own that offer a better risk/reward at these levels, and consider making some replacement trades. (Rest assured, if you are a client, this is exactly what we are doing on your behalf on an ongoing basis – including during these volatile times)

6.       You don’t have to “do” anything – Market moves like this invoke our “fight or flight” instincts.  It’s visceral.  It’s human nature. We’re hard wired to run from fear and pain.  So the urge to do something (an urge to go to cash and come back when things settle down) is very real.   At least then you’ve taken action and done something, right?.  If you are reading this and are feeling this urge, please go back and reread #5 and #6.  Sometimes the best action is no action at all

7.       If you need to do something, pick from this list – Yes, the past few weeks have been punishing to your portfolio value.  However, there are present day fact patterns that may help your future cash flow. So if you are compelled to act, consider something from this list

a.       Consider additional funded-  If you are an investor in an accumulation phase, you may wish to consider adding to your investment bucket at this time.   Is the “bottom” in?  No one knows.  But with market down meaningfully on the year (and some individual stocks down even more), you could consider adding some of the capital you planned to add this year

b.       Roth conversion – If you have a majority of your retirement savings in pre-tax accounts, you could consider a Roth conversion.  Yes, the funds you convert are subject to income tax – but if we get an equity rebound from these levels, that appreciation (which is free from tax once in a Roth) can offset the tax.  Of course, you need the cash to pay the taxes and there is a chance stock won’t rebound in the next day, week, or even month.  Best to discuss this for your specific situation (rest assured, we will be bringing it up to those of you we feel it may be a fit for) 

c.       Revisit your list of those that got away – We have heard from investors a lot in the past two years about stocks they wish they would have bought at $x.  You likely have a similar list. I know I do.  Pull it out and check the current trading prices and fundamentals of the businesses that “got away”. Maybe there is something worth investing in

8.   You are not in this alone –  Fear and uncertainty thrive in isolation. Left to your own thoughts and worries, it’s highly likely that you will increase your level of anxiety and concern.  We are not here for the easy times in the markets when everything is working.  We are here for times like this.  We are here to walk thru the points above as they specifically relate to you. We’ve been in touch and will continue to be – but please, reach out to us as well.  Any time. Any question. Any thought.  You don’t have to do this alone. You were never meant to.

Invest on,

Pam