Market volatility is back. 2022 began with market contractions based on interest rates, Covid, and monetary policy. The drop appeared to be short-lived, as the last few days of January and the first days of February saw a swift recovery. Unfortunately, the rally was cut short as the geopolitical concerns between Russia and Ukraine grew. As people, we care for those in Ukraine and hope for a peaceful resolution soon. As investors, the plan of action remains the same as a month ago, and the same as two years ago when Covid first ruled the headlines, and the same as each market contraction before that: don’t panic, stay the course.
A prevalent phrase in uncertain times is that the economic environment is “unusual,” “unprecedented,” or “never seen before.” While true that world events are often distinct, as a whole, these events should be viewed in context:
- The 2001 tech bubble crash was unique – the US market is up over 5-fold since the event.
- The 2008 housing crisis was unheard of – investment benchmarks are 4 times higher today than they were 10 years ago.
- Covid-19 was unprecedented– from before the pullback, the market is up 30% in 2 years. Relative to the bottom of the drop, US stocks are now valued at nearly double what they were.
While we may not know why or when the next contraction will arrive, historically, it happens almost yearly. More significant pullbacks seem to appear every 5-10 years. We know they will occur. We also know that regardless of the drop, the market continues to go up over time.
Since we expect peaks and valleys, we create portfolios constructed to withstand the drops. If you are in retirement, your cash flows are structured with the drops anticipated. Market volatility is not a surprise to your financial plan. If you are looking for a glass-half-full view of this current market, try on the following thought for size: “I’m glad we have a financial plan purposefully built to withstand rough times.”
Legacy was forged with your best interests in mind, and we do our most valuable investment work in difficult times. We focus on being disciplined with your investments and detail-oriented in financial planning, especially during these challenging periods. In your investments, we are consistently rebalancing, looking for tax-loss harvesting opportunities, and shifting fund flows as necessary. In your financial planning, we are reviewing cash flow timelines and retirement simulations, coupled with estate planning and relevant tax-saving opportunities.
If you are dreaming of some “precedented times,” you can rest assured you are not alone. But, until those times come, you can also rest assured knowing your team at Legacy is keeping a keen watch over your financial well-being.