The first four months of 2022 have been extremely challenging for investors. In fact, this is one of the worst starts to a calendar year ever for the stock market. To make matters worse, bonds have not fared much better as interest rates have been on the rise. We want to share our perspective on this investment environment.
There is no single reason for the market decline. Instead, we believe that markets have struggled due to a combination of factors, including:
- Conflict between Russia and Ukraine
- Rising Interest Rates
- Inflation Fears
- Possible “Bubbles” in High-growth Stocks
- Lingering Impact of Covid-19
It’s important to remember that these factors are also somewhat connected to each other. For example, we believe that the conflict in Ukraine has, in part, contributed to the inflationary environment due to its impact on commodities like oil and wheat supply. Similarly, the threat of long-term inflation can potentially have a negative impact on what investors are willing to pay for growth stocks over time. And, as we have all likely experienced, supply chain disruptions (many of which can be attributed to Covid-19) hurt both businesses and consumers and can lead to higher prices.
As of the market’s close on May 11, the S&P 500 was down 18.05% and the NASDAQ was down 28.35% year-to-date. Many trendy growth stocks which became popular in 2020 and 2021 were down well over 70% from their all-time highs. And, partially due to rising interest rates, the bond market has also experienced a significant amount of volatility and decline.
Times like these remind us of the importance of having a solid investment plan in place. We believe the following criteria are essential for any investment plan, especially for retirees trying to navigate through challenging times in the market:
- Diversified Portfolio Construction, consisting of investments that are suitable for the individual investor.
- Confidence in the Investment Process. Past performance is no guarantee of future results. However, when an investment as a long-term track record that includes successfully navigating difficult markets in the past, it can help build confidence that a similar investment approach can help achieve an investor’s long-term goals
- Awareness of Time Horizon. Is this investment a short-term investment, in which the investor is going to need to use most of the funds within a fairly short period of time? Or, is this a long-term investment, such as a retirement account? The answer to this question could play a large role in an investor’s comfort level in dealing with market volatility.
No one can predict when the market decline will end or how quickly the market will recover. Instead, we believe that it is important for each investor to keep focusing on their investment goals. If an investor’s goals are long term and involve the need to generate retirement income, we believe that most investors would be well-advised to remain committed to their long term investment plan and avoid panicking during this volatile period for the market.
We are here to help in any way that we can, so please contact us with any questions or concerns.
All investing involves risk including loss of principal. No strategy assures success or protects against loss.