By all accounts, last year—2022—was a challenging year for investors, both for those seeking appreciation in equities and those wanting the relative stability of fixed income (bonds).  We saw interest rates rise at an unprecedented and unexpected rate. As a result, both asset classes faltered.

The good news—last year was not the norm. Rarely do we see stocks and bonds decline in concert.  While we see a reversion to the mean on the horizon, we feel it is likely that much of 2023 will still be dominated by spates of volatility—although to a lesser extent than we saw last year.  Investors need clarity on inflation and interest rates.

Additionally, the probability of a recession is increasing. Recessions should not be feared but accepted as a normal aspect of a healthy economy, which is destined to cycle from peak to trough.  Unfortunately, no one knows when those points will occur. The key consideration to remember, as we shared last month, mild to moderate recessions provide a needed opportunity for the economy to reset and prepare for future growth.

Although we know that the recent and current market volatility has been unsettling for some, markets are simply adjusting to a future that will likely include higher interest rates.  In the long run, this ‘new normal’ should prove beneficial to fixed income investors—which often include those approaching and in retirement.  And, while higher interest rates may limit the speculation that drove equity valuations to un-precedented returns in 2021 and before, we are confident that corporate management teams will adjust to the ‘new normal’ and generate significant cash flows that investors will find attractive.

In the interim, we encourage you to do all you can to control what you can control. Here are some suggestions. Many of these considerations will have a far greater impact on your financial well-being than short-term market returns:

·         Do you have a plan? Is your plan up to date? Does it reflect the objectives you have set for yourself and your family?

·         Has your plan been stress-tested? Do you know how you will fare financially in different market conditions with variable returns?

·         Does your current allocation accurately reflect your objectives, time horizon and risk tolerance?

·         Have you reviewed your beneficiaries? Does your estate plan adequately provide for your beneficiaries and their needs?

·         Are your accounts registered properly? We recommend that our clients hold all individual and joint accounts either in trust or include Transfer on Death instructions to avoid probate.

·         Are you currently contributing all you can to your retirement plan? Retirement plans frequently offer an employer match, as well as significant tax deferments. Combined, these features often provide a much greater return than you will realize in a brokerage account.

·         Can you contribute to a Health Savings Account (HSA)? If so, are you taking full advantage of this benefit? HSA contributions provide immediate tax savings, while allowing you to set funds aside for current and future medical expenses, even those you may incur in retirement.

·         Have you set aside funds that you will likely need over the course of the next 12 months? These funds should remain in cash or highly liquid investments and not exposed to potential market volatility.

·         Have you reviewed your tax situation for all entitled deductions? Tax avoidance and tax efficiency provide great returns. Please note–tax avoidance and tax efficiency are legal and encouraged; tax evasion is not.

If your answer to any of the above questions is “No” or “I’m not sure”, we can help.  In most situations, the right Structure and Allocation will provide far greater returns in the long term than the selection of a particular investment asset ever will.

We appreciate the opportunity to be your partner on your financial journey and wish you all the best,

 

Todd