Perspective on Recent Market Volatility
The human tragedy that has unfolded in recent weeks has been difficult for many and our hearts go out to those that have been affected. While the pain and suffering of fellow global citizens can’t be overlooked, we also have a fiduciary duty to our clients to analyze these events in terms of their impact on investment portfolios.
The combination of rising inflation and the Russian invasion of Ukraine has made the global economic growth outlook highly uncertain. This has led to increased volatility in financial markets, as we have witnessed in the last few weeks. The S&P 500 is down over 10% year-to-date and there have been 6 days where the index has moved up or down by more than 2% – compared to 7 in all of 2021.
In this type of environment, it is important for investors to not react rashly. The biggest mistakes come from hasty actions taken at the wrong time. That does not mean we advocate a “buy and do nothing” approach to investing. We believe in a disciplined process of continuous risk assessment and being proactive in mitigating those risks.
We have no way to know what the future holds, but we can work to be prepared. For example, we added inflation-protected bonds early last year before the inflation numbers started increasing. That investment has done well and helped protect our clients from otherwise poor returns in the bond market. We also recently added a floating-rate bond fund that will pay higher income if interest rates continue to rise.
Starting early last year we also started slowly rotating away from growth/tech stocks. We were overweight to growth in 2020 but have since been moving more towards value/dividend-paying stocks. Stocks with higher cash flow and slower, steadier growth tend to hold up better in periods of uncertainty.
More important than the changes to investment portfolios is the planning that we do with our clients. We want to make sure that you have the peace of mind that no matter what happens in the financial markets, you will still be able to reach your financial goals. We work hard to remind clients that this type of market volatility is not only possible but is to be expected.
So, how long will the war last? Will inflation continue to rise? Will Russia take Ukraine, or will they try to strike a deal? What will the sanctions against Russia do to the global economy? We do not have the answer to these questions. Right now, we are observing and analyzing.
Please let me know if you have any questions about this or about specific investments. I am always glad to discuss.
All the best,
Keith J. Akre, CFA, CFP® – Vice President & Trust Officer
Opinions expressed are solely my own and do not express the views or opinions of Stillman Bank. Investments available through Stillman Trust & Wealth Management (1) are not FDIC insured (2) are not deposits, obligations, or guaranteed by the bank and (3) are subject to investment risk including possible loss of principal.