Skip to main content

Astoria Strategic Wealth

Money Talk! July 2022

WHEN RISK MATTERS

The first half of 2022 is now behind us, but what a difficult market environment it was: the U.S. "stock markets post[ed] [the] worst first half of a year in over five decades" and investors appear to be "bracing for more volatility ahead" (Source: WSJ). Even broad-based U.S. bonds are down 11% year-to-date (as measured by the Bloomberg Aggregate Bond Index) - the typically more stable part of a portfolio.

It is during times like these that the investor witnesses that risk and return are indeed quite linked. While fixed income was down for the quarter, it was down "only" 4.7% vs. 16.9% for the broader U.S. stock indexes (as measured by the Bloomberg Aggregate Bond Index and the CRSP US Total Stock Market, respectively), so fixed income did provide a decent buffer for the broader rout in stocks although it was not left unscathed. Further, investors are reminded that not all riskier or growth-oriented strategies actually translate to higher realized growth (particularly depending on the timeline) - especially when some investors have chased ever higher and higher valuations. Crypto and technology companies in particular have faced the brunt of the declines for the year. With the swift declines bringing many equity markets down 20% from their previous highs (referred to as a bear market), it is important to recognize that the average bear market sees declines of 41% with an average duration of 20 months, so it is potentially too early to say we have seen the bottom of this market. However, the average subsequent bull market is a growth of 162% over 50 months (Source: JP Morgan), but by dwelling on the bear markets (usually measured by months) one can easily lose sight of the often largely positive growth that can happen in bull markets (measured most often by years).

The consumer is ever adaptable and while they make adjustments to spending in the short-term that can certainly cause some continued market pain, the long-term results speak for themselves. Instead of throwing in the towel, we can instead recognize the litany of things (mostly positive) that we cannot see or begin to calculate in our futures that tends to tilt the scales of wealth creation in investors' favors. If instead we use this as an opportunity to "stress-test" our financial plans, it can allow us to be more mindful and intentional about what is really important to us (timelines, goals, expenses, or priorities) and recalibrate accordingly. As appropriate, it may also be a time to reconsider idle cash or assets that could be put to other long-term use or to accelerate an investment action plan given that forward-looking risk-adjusted returns now tilt to above-average possibilities when coming off of bear market territory. Please speak with your Client Advisor to discuss your specific circumstances to see what - if any - action is appropriate. Sometimes staying the course is as good an action as any.

Read on as we discuss inflation, recessions, and why (most) investors should remain patient. Wishing that you and your family had a great 4th of July!