The Spring Storm of ’22
Market Volatility Continues to Remind Us of the Power of Process
By Steven Higgins, Financial Advisor, Principal
Do you feel like the last few years in the markets have been a roller coaster turning your stomach and emotions upside down? Do you feel the pressing angst of fear and an elevated sense of worry about your ability to achieve your goals? That’s absolutely okay! The last few years have certainly seen more frequent volatility. It’s the scary moments that leave us questioning “the plan” and there’s been more than a fair share of scary moments. However, we do tend to emotionally forget the good moments and there have been even more of those.
The market volatility that’s gripped the markets since early January of this year has finally resulted in the S&P 500, a broad measure of US stocks, entering a Bear Market, meaning the index is 20% below the previous all-time high set on January 4th, 2022. This marks the first Bear Market since the pandemic inspired Bear Market of 2020. Interestingly, this is the third decline of the S&P 500 of 20% or more since December of 2018. Since 1950, there have been 13 corrections of 20% of the S&P 500. So, 23% of all of the corrections 20% or greater have come in the last 4 years, which account for just 5% of all the years 1950-2022. Even so, all of that volatility hasn’t muted gains in U.S. stocks. Since the bottom of the Christmas Correction of 2018 (12.24.18), the S&P 500 has returned 63%, over 20% per year. The volatility, while unsettling in the moment, has proved to be a net win for investors with returns for the S&P 500 over the same time period practically double the historical averages.
So, why does this matter? It matters because it should come as no surprise and our clients were informed and ready for it. In the spring of 2017, Allie and I started to prepare our clients and their portfolios for the prospect of a looming broad inflationary cycle. We advised that ownership of investments like stocks and real estate would be necessary to keep up or benefit from inflation. We also cautioned that the ride would be significantly more volatile in the years ahead.
Excerpt from our article in March of 2017 – Inflated Expectations
“In my opinion: Inflation and interest increases are coming. The timing is anybody’s guess, but they are coming nonetheless. The period ahead may be marked by increased volatility, as is common in inflationary environments. There may be times investors feel like they need to seek safety only to find the security of the harbor was no match for the tsunami. This is a time for investors, both retirees and pre-retirees, to gain an acceptance and understanding of how a diversified portfolio and normal volatility can help you reach your goals. I’m sure at some point, probably soon, we’ll have a correction.” E
March 2017, S. Higgins
Excerpt from our Article in February 2018 – Inflation, Volatility, But No Surprises
“In every client meeting over the last year, we talked at length about the realities, risks, and potential opportunities that accompany inflation. We repeatedly stressed about how inflationary environments are volatile.
February 2018, S. Higgins
Allie and I have produced more content pertaining to opportunities and risks associated with inflationary cycles than any single topic over the last 5 years. Our client meetings have been punctuated with reminders that inflation is a real economic force and can work to our client’s benefit. However, there must be a measure of understanding of the realities of volatile periods as the system adjusts to changes in asset pricing and corresponding increases to interest rates.
This article serves as a reminder that our client portfolios are invested as part of a disciplined process. At the heart of the process is the financial plan, the goals, and the strategies of our clients. Our investment process is designed to remove the emotional impact on investing outcomes by incrementally decreasing equity risk exposure as markets drive higher (as was the case in 2021) and by incrementally increasing equity opportunity as markets correct lower. This market correction is no different. By process, we reduced risk in client portfolios on New Year’s Eve of 2021, just a couple of days before this correction began. Last week we repositioned our client portfolios to take advantage of the market opportunities as the S&P 500 breached the -20% threshold – officially becoming a Bear Market.
To be very clear, the downside of market volatility is never fun. Allie and I are absolute in our understanding of what our client’s assets represent for their families, the dedication and sacrifices of the past, and the future goals and prosperity of their family’s future. We also understand that emotional reactions to volatility are often the downfall of many financial plans and the cyclical desire to stop short-term pain is historically much more likely than the market volatility to leave a financial strategy in ruins.
There are many aspects of our process that are seemingly mechanical. However, it’s the human aspects of our process that make it work. The communication, the relationships, and the understandings that allow us to remain steadfast and intentional. We work side by side with our clients to work towards goals and that is most important as things get choppy.
We are certainly available to talk through our process and our client’s strategies any time. If you have any questions or concerns, we always encourage you to reach out. Stay tuned to the Higgins & Schmidt blog for updates and commentary.
(*Note for those attempting to fact check me….as of the writing of this article, the Bear Market threshold of -20% in the S&P 500 had only been breached intra-day. The S&P 500 hasn’t closed below the threshold….yet.)
Securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through Higgins & Schmidt Wealth Strategies, a registered investment advisor and separate entity from LPL Financial. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification and asset allocation does not ensure a profit or protect against a loss. Stock investing involves risk including loss of principal. Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and bonds are subject to availability and change in price. Rebalancing a portfolio may cause investors to incur tax liabilities and/or transaction costs and does not assure a profit or protect against a loss.
Financial data sourced from YCharts.
