Second Quarter Investment Commentary 2022
Last Thursday closed out one of the toughest quarters in recent years in the investment world. Panic has risen since January over the situation in Ukraine, inflation, recession and a myriad of other issues.
When things get rocky, I lose sleep. Ask Anna or Justyn. Ask my wife. When the markets are rocky, I’m not a pleasant person to be around.
But it isn’t because of the markets, per se. I lose sleep because I worry about clients who are losing sleep about the market.
Crazy, right? But it’s true. I worry that a client will make a bad decision based on panic.
Absent any clients, my normal reaction to inflation or Ukraine or recession?
“Meh. So what?”
I just can’t get excited about it. Being a student of human nature, very little worries me economically. Let me explain why.
Are You Being Served?
There is a show that comes on late-night on PBS from time to time titled Are You Being Served? It’s a British show about a department store from the mid 1970’s.
I loved the show. It only lasted a season or two. I could watch them on repeat for hours.
One aspect of the show, being from the mid-70’s, was their attitude towards the economic difficulties of the day. Inflation was rampant at that time. And they often made a passing “we shall persevere” type attitude towards it. It was just something they were supposed to deal with. And they did deal with it!
They didn’t persevere because it was a TV show or because they were British. They were just a reflection of our collective survival during an extended time of high inflation.
Human beings have an amazing ability to adapt. It’s what we do. No matter what Mother Nature or the economy or our wizened leaders have thrown at us, we’ve adapted and thrived.
What is also fascinating about the human animal is the dichotomy we live in. We have an amazing ability to adapt, yet we crave crisis and drama. Not just economically.
Look at what we watch on TV or read in magazines and books. (Back when people actively read magazines printed on paper, one of the most popular magazines on a consistent basis was the National Enquirer. Talk about drama!) Even our most memorable sports moments are shrouded in drama and crisis.
This means, when there is a hint of an economic crisis, we naturally whip ourselves into a great big ball of panic. As far as we are concerned, any new economic crisis must be the last great thing that is going to bring about the end of the human race.
I guess it’s that sense of the unknown. If we don’t understand something, we assume it’s the worst event to ever hit the human race. Even if it isn’t.
Let me give you an example. How do you feel when you read this word?
Has your pulse even increased a single beat per minute?
I have to say, poxes in general aren’t good things. We’ve long forgotten how bad smallpox was for centuries. In fact, it was due in part to smallpox that we have our modern vaccines today.
Monkeypox could be pretty serious. If it gets out of control, it could kill millions.
But we haven’t given it more than a passing thought. Because we just did the “whole pandemic thing.” It’s not a big concern to us.
Let me give you another word:
If you’re under the age of 50, you have zero concept of inflation. You were too young to experience 1970’s and 80’s inflation. Even those folks over 50 might forget what life was like in those decades.
Because we have limited recent experience with inflation (unlike with a pandemic), we over-react. But those characters on that funny BBC show - they were dealing with it just fine within a year or two of experiencing it.
Whether we panic or not, we do adapt. We’ve proven it time and time again. We conquered inflation in the 1970’s. We adapted and worked around a pandemic. The next thing this world will throw at us - we can adapt to that as well.
Because of that, I don’t lose sleep over the economy. I lose sleep worrying about you worrying about the economy. In a way, if you stop worrying, we will both get a good night’s rest.
One pressing question I’m receiving is “ are we headed to a recession.”
Yes. (Here is where you gasp audibly. Unless you read the previous section very carefully.)
Based on economic history, we should experience a recession every 2-5 years, on average. Our last recession ended in. . . . 2009.
That’s 13 years.
The economy hasn’t gone straight up in that time, but we haven’t seen a major downturn either.
As we discussed in the previous section, we have no recent experience with a recession - so our panic is heightened due to the unknown nature of a future recession.
Are we headed to a recession? Oh yes, we are. “When?” is the key question.
We might roll into a recession this year. We might stave it off and experience it in late 2023 or early 2024. I can’t tell you that. But recessions are necessary to economic growth and one is inevitable.
Does that mean we should alter your investment plans? Probably not. I know that for managed clients, we design portfolios that take into account future downturns and recoveries.
Selling when things are down, only to buy back when prices rise is a sure way to lose money.
For the quarter, the market (S&P 500) fell 16%. That’s an additional 8% in June, bringing us to down 20% year to date. While I’m not personally worried, if you are a worrier, you may want to skip opening your June account statements.
As we’ve discussed before, all aspects of investing have taken a toll. Bonds have fallen in value - sometimes almost as much as stocks.
One strategy we are beginning to utilize is the purchase of short-term CD’s. We were able to procure a reasonable rate of return, FDIC guaranteed for 3 months for many clients in the middle of last month. When these securities mature, we will reevaluate the interest rate markets and possibly lock in a longer-term investment at an even higher rate.
I’m not jumping for joy over the returns we are seeing out of these CD’s, but they are much higher than just about anything else out there currently and are adding a measure of stability to portfolios. My hope is this is a temporary strategy with us looking to lock in longer term rates with other securities in the future.
I’ve thrown enough information at you for this quarterly update. If you have questions, do not hesitate to reach out. We are here to help. You can use the contact form at the bottom of this page or give us a call at (508) 730-2300.
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This blog is the opinion of Successful Money Strategies, Inc. and is provided for informational purposes only and is not intended to provide any investment advice or service. Statistics and other figures are accurate at the time of original publishing. Any advice herein should not be acted upon without obtaining specific advice from a licensed professional regarding the reader's own situation or concerns. Always count your change.