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Looking For Answers

Uncertainty breeds fear, stress, and anxiety when markets shift downward. If we as investors focus on the first quarter of 2022 and begin to draw conclusions as we open our most recent investment statements, we may lose sight of what long-term investing is all about. Keep in mind only two years ago the market dropped 34% at the start of the global pandemic, only to rise well above any expectations to record levels in a brief period. When markets rise investors believe there is no end in sight, but keep in mind that markets never move in a straight line for an extended period. The chart below shows that no matter the crisis at hand, volatility has both a starting and ending point, they are just not the same each time. Presently we are faced with inflation, rising interest rates, lingering effects of a pandemic and a war in Ukraine. Times like these are always difficult to understand, but past experiences have shown us a different picture. Take a moment to look back at where you were since the last downturn and where you are today. You may be surprised that it has been a positive experience even with the current headwinds. For investors that can’t look back that far, this is a time to hold steady and not react. 

Our philosophy revolves around planning for those things we don’t have control of-one of which is volatility.  Developing an asset allocation right for each household keeps us all grounded during times of uncertainty. We have been asked during the first quarter what can we do to lessen the downward pressures on our portfolio. In 2020, we took profits in portfolios twice from technology and growth. In 2021 we took profits before the markets turned down. We used the profits to fund required minimum distributions, cash flow needs, purchases of cars, home improvements, college education, charities and vacations. We also used profits to add to dividend paying stocks as well as areas that were underperforming with opportunities to move ahead. We rebalance in up markets and make slight adjustments during volatile times. 

It is disheartening what is happening in Ukraine and we can only hope that an end is near. The war has brought on a new set of supply chain disruptions to world markets. At a time when we should be excited over the news of an end to the pandemic, we have yet another wall to climb. The chart below is a research piece from Hartford Funds titled “The Price of Panic” is an example of why a balanced approach gives you peace of mind without all the risk. If an investor were to remain full invested in the S&P 500 since 1960 with 100% in equities with greater risk the portfolio would have doubled. The US has experienced 26 bear markets since 1929; * and our recovery record is 26 for 26.  Although we can’t predict the future, Warren Buffet has said, “It’s never paid to bet against America.” The light blue line shows how a diversified portfolio can ensure greater peace of mind over time vs being too conservative or reactionary. 

It's Different this time

Every crisis or downturn brings forth a new set of variables and each time it is different. Generally, the bond market is stable during turbulent times, however we are going through a time period of moving from almost zero interest rates to resetting the bond market at higher rates.  Inflation was non-existent pre-pandemic for almost twenty years, so when it goes from zero to current levels of 7% plus it feels like everything has doubled. Things are more expensive, yet the economy is growing as consumers are out spending. What we learned is the government since 2020 over stimulated the economy which is the main cause of inflation today given the continued supply chain disruptions. No one had a playbook on how and what to do during a pandemic. Therefore, today we are sifting through the ripple effects of a pandemic, the changes and challenges the pandemic has created. We continue to adapt to what is in store next wanting answers and searching for solutions. Warren Buffett sums it up best in his quote: “In the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts, the Depression, a dozen or so recessions and financial panics, oil shocks, a flu epidemic and the resignation of a disgraced president.  Yet the Dow rose from 66 to 11,497.”  Look at what has happened since Warren Buffet was quoted in 2010. The Dow Jones Industrial is now over 34,000. 

We never know when the markets will settle down and begin to recover, we just know that consumers all around the world although faced with challenges are resilient. Experience has taught us all to be patient even when the road ahead will be volatile. Keep in mind when you look back on your experiences of past crises how you advanced your portfolio to stay ahead of inflation, taxation and how you continued to support your lifestyle. We are not out of this crisis, and we don’t have the map as to when we will be, but what we have learned from the past is to stay diversified since as fast as the markets can turn down when times are less volatile, they can turn up just as quickly.  

We are always here for you to help you through these more challenging times. If you have questions or concerns reach out to us, we are not here only during the best of times. We are confident that your portfolio will withstand volatile times ahead. We look forward to the conversation throughout the year. We hope you enjoy spring!

Thomas L. Menzel, CFP®                                             Laura Biermann, CFP®
President                                                                       Vice President

IMPORTANT DISCLOSURES:  The opinions presented in this communication are subject to change without notice and no representation is made concerning actual future performance of the markets or economy.  Information obtained from sources is considered reliable but is not verified.  The research and other information provided herein speak only as of its date.  We have not undertaken and will not undertake any duty to update the research or information or otherwise advise you of changes in the research or information.  Performance information presented is not an indication of future results and index data is provided for market reference purposes only.  This is not an offer to buy or sell or the solicitation of an offer to buy or sell any security/instrument or to participate in any particular trading strategy.  This document is the property of Legacy Financial Advisors and is intended solely for the use of the Legacy client, individual, or entity to which is addressed.  This document may not be reproduced in any manner or re-distributed by any means to any person without the express consent of Legacy.  This material is for educational purposes only.  Mis-transmission is not intended to waive confidentiality or privilege.

[1] Hartford Funds research “The Price of Panic”