2022 has gotten off to a very rocky start. January saw markets decline in reaction to a cocktail of concerns, namely the fast-spreading Omicron variant of COVID, rising inflation, and a much more hawkish shift in policy expectations from the Fed. The COVID concerns have diminished quite a bit, but the inflation and Fed concerns still linger. Then, just as the market was beginning to recover, Russian leader Vladimir Putin decided to act on his long-standing desire to bring Ukraine back into Russia. After months of building up forces along the Ukrainian border, all the while promising not to invade, the Russian army has invaded Ukraine.
The Russian aggressions have been met with swift condemnation from leaders around the world and brings with it severe economic sanctions intended to punish the Russian leader for his blatant disregard for international law, not to mention the human toll this invasion will incur.
Capital markets around the world have declined due to these aggressions. The S&P 500 which gained 28% last year, has thus far fallen about 11% this year. When the market experiences a decline like this, it is natural to feel the urge to “do something.” We feel it is a mistake to attempt to react to market events like this one. In the near-term, it is impossible to know which direction the market will head. But in the long-term, we can feel very confident that the market will recover from near-term losses and will eventually head higher.
As the chart below shows, event-driven market declines happen every few years, but in every instance, the market is higher in the future. The best “actions” we can recommend are preventative and are implemented in advance of these types of selloffs. We recommend investing in a well-diversified portfolio with an asset allocation that is appropriate for your particular circumstances. Then, when the market experiences a bout of volatility, remind yourself that this is to be expected and that the best course of action is to have confidence that your portfolio will recover and continue to grow.
We can’t claim to know with any certainty what will happen with the Russia/Ukraine conflict, or with the Fed and Inflation. But we have confidence that these situations will eventually be resolved. Our expectation is that the current volatility will calm at some point and that the wise course of action is to continue investing with the faith that the recovery will occur, and new highs await in the future.
Thank you very much for your continued confidence in our service and advice. If you would like to discuss our opinions, outlook, or your portfolio in greater detail, we would be happy to schedule a meeting or a conference call at your convenience. Lastly, don’t keep us a secret. If you know someone who would like help planning for their financial future, we will be pleased to speak with them to see if we can assist.