To watch this blog in video format go here. Typically, for quarterly reviews I put in a graphic showing how major markets faired over the previous year, but who wants to see a bunch of big red down arrows? I know, I don’t, besides, you know your portfolio took a big hit in 2022, but if you’re a glutton for punishment, here you go. So, let's look at the bright side. What has happened after a down stock market year as measured the by the S&P 500? Often, the market was positive the next year. The last time it wasn't, was the years surrounding 9/11, and the last really big down year was in 08. 2022 wasn’t as bad as 08, but it was still pretty bad. But there is a key difference to point out: during the financial crisis of 07 and 08, we had far greater overarching problems with our global financial system. The 2022 down market was driven mainly by pesky inflation. Inflation, when not kept in check, can be a serious problem, but, I think the Fed is doing a good job of facing inflation head on with a "short term pain, long term gain" approach with their multiple aggressive rate hikes last year. So, will 2023 be positive? I'll let you know come Christmas-time, but, we're off to a good start, and hopefully we can add to that long list of positive market returns the year following a negative one. So, get in those IRA and 401(k) contributions while markets are still down because they won’t be forever. And remember, down markets are temporary, up markets are permanent. If you have any questions, reach out to me here.
Be Greedy When Others Are Fearful
Watch the video version of this blog here. There’s a saying on Wall Street, “be fearful when others are greedy and be greedy when others are fearful.” And diving into that motto is one area of deep value I bring to my clients. When my clients’ portfolios are faced with the uncertainty and adversity of heavy selling pressure – something we’ve seen a lot of through 2022 – I stay calm and focused for them…and I take a rational approach to building retirement wealth for their portfolios. And that rational approach is simple: to buy. I’ll show you what I mean.
Below is a chart of the S&P 500 for the last year. I circled two areas in green where we bought. And this is the key to building long-term wealth. Markets going down are temporary, but we don’t know when or how low it will be before these sell-offs stop and ultimately turn around. So we pick points where we say, “alright, we’re going to put some money to work.” Now we don’t know where the bottom will be, but if we make waves of buying and portfolio rebalancing when these new lows hit, we WILL get it right at some point and we will be rewarded for our resolve in the face of adversity – we will be rewarded for being greedy when others are fearful.
Maybe you are too worried to do something like this, or you don’t have the time or knowledge to do it yourself. If so, and you want me to bring this value of wealth building to your retirement portfolio, then connect with me through pen-fin.com. Thanks for watching, have a happy Thanksgiving, and please remember, past performance is not indicative of future results and this video is not a recommendation to take action on any security.
Q3, 2022 Quarterly Report
It’s been another rough quarter for stocks and bonds – something I’ve said three quarters in a row now. Go here to see our quarterly report for Q3, 2022 and you can watch this post as a video here. I can’t predict the future, but I think 2022 will end in the red. It’s tough to see, but it makes sense, we’ve had three years of a very strong market, so we’re due for a come back to reality cooling off period. I know it’s tough to see our portfolios take a hit like this, but let’s look positive. The market is holding steady, giving us an opportunity to put money in at depressed prices before it takes off again. And it will take off again, because it always does. It’s just a matter of when, not if. Typically, when we have a big down year, we follow it up with a strong year…maybe 2023 will be that strong rebound, or maybe it won’t happen until 2024? Will we finish this year down 20% or so or will we claw our way out of this bear market to finish the year maybe down 10%? We’ll see come December 31st. But in the meantime: stay grounded, don’t let your emotions get the better of your sound financial judgement, continue to make 401(k) and IRA contributions and continue to invest those contributions into a low-cost globally diversified portfolio - which is the best way to build wealth for retirement - and, in time, we’ll come out of this to make new market highs and our resolve through this tough 2023 will be rewarded. If you need any help staying grounded during these tough investing times, reach out to me here.
A Look at 2022 and What It Means Going Forward
Go here to see this blog post in a video. I recently read how the S&P 500 had closed below its 200-day moving average for 110 trading sessions, which is the longest streak since the bear markets of 08 and 2000 through 2002. A moving average is a form of technical analysis which takes what has happened and displays it in graphical form on a chart. Technical analysis is used by some to take past events and attempt to use them to predict what will happen. Will they be right? Only time will tell. So, let’s look at what has happened after those two bear markets. How did the S&P 500 perform coming out of those markets?
Coming out of 2002, the market returned 28%, and the next 3 years it returned 14% per year and over 5 years it returned 13% per year. Coming out of 08, the market returned 26%, 14% on average for 3 years, and 18% on average for 5 years. What has happened won’t predict what will happen, but negative returns are temporary, and we just don’t know how long they will last. It’s looking like 2022 will be a negative year, but those negative years always lead into positive years – we’ve seen it before, we’ll see it again – but now is a great opportunity to get retirement money into the market before the next market turnaround takes off. Just think about it, if you could back and buy stocks in 02 and 08, would you? We’re faced with that same opportunity right now, so take advantage of it!
Q2, 2022 Quarterly Report
Here you will find a PDF of the Q2, 2022 Quarterly Report. On page 3 you can see that stocks and bonds suffered mightily in Q2, and I know this is tough to see, but this is just a temporary snapshot of market activity. So, let’s compare this snapshot to what we see on page 4. Remember losses are temporary, gains are permanent. The 1 Year numbers look bad, but, if we are investing for retirement and, more specifically owning stocks, we must have a long-term outlook. 5 and 10 Years isn’t that long for retirement planning purposes, but it’s great to see stock and bond ownership over 5 and 10 years is all green arrows. As investors we should take a lot of comfort in that. Times are tough right now, but when it comes to stock market investing we know two truths: we will hit a bottom and we will make new highs again. We just don’t know when. And that is how we build wealth for retirement: owning stocks and bonds for the long haul. When we do, we get the bad with the good, but we ultimately get far more good than bad. Bad is temporary; good is permanent. I want to turn your attention to this article on page 16 written by Marlena Lee from Dimensional, and I highlighted a key sentence from her: “Reacting to down markets is a good way to derail progress made toward reaching your financial goals.” Down markets are not reasons to sell, down markets are not reasons to move to cash. Rather, down markets are great buying opportunities to buy into great companies while they’re on sale. If you’ve been through some down markets before, do you look back and say, “ohhh, I wish I woulda bought back then?” If you can support owing stocks – and remember stocks are a long-term investment only – then the graph here shows you there have always been up and down gyrations to the stock market, but there’s only one true direction…and it is up! So consider down markets great opportunities to go back in time and to buy those stocks at lower prices, and you can see from the graph those lower prices will presents themselves (and they’re doing it right now, too), but they won’t last forever. If you need some investment guidance, reach out to me through my contact page.
Instant Gratification is Lost on the Stock Market
The stock market doesn’t care about our need for instant gratification. More than ever today, we live in a society where we need immediate fulfillment – we immediately go to our phones to answer a question, we assume the point of an article just by reading its headline, and we try to express our thoughts in a short Tweet. The internet is amazing, but it made us so impatient. And long before we had the internet, we had the stock market. We cannot apply today’s standards of expectation of immediate gratification to our retirement portfolios.
To be a stock market investor means we have a several decade outlook to build our wealth. If our timeline is six months, or even a couple of years, stock ownership is not for us. Stock ownership means we have to be able to tolerate long periods of sideways markets and we have to be able to stomach down markets, too. Investing for retirement purposes will not give us immediate gratification; rather, it is a long slow and sometimes volatile rise towards wealth building.
When it comes to the stock market, stop looking. Stop looking at it, stop looking for that instant buzz, and check in on your portfolio once a year. There is no instant gratification to be found there. And if you are getting that immediate jolt – whether it be positive or negative – then you are not properly planning for retirement. If this is you, I can help. Reach out to me at my Contact page. And check out this blog as a video.