Market Update - May 2022

As we approach this Memorial Day weekend to kick off Summer, investors can’t help but to feel anxious about what this Summer may bring…will it be more of the same?  Inflation, supply chain issues, the US Stock Market down 16% year-to-date, bonds off to their worst start in decades.  It’s been a rough 5 months for investors, but let’s not dwell on the bad news.  Let’s review a few principles on which we can hang our hat during turbulent times like these.

Principle #1 - Your Plan Was Designed With This in Mind

For clients in retirement, you’re familiar with our dynamic withdrawal strategy (aka ‘guardrails’) which explicitly outlines how far down the market can go before we need to make adjustments to your distribution strategy.  For those taking Required Minimum Distributions (RMD’s) we generally start looking to raise cash early in the year to neutralize the risk of short-term market swings like we’re experiencing now.  Other client’s may be familiar with our strategy to ladder US Treasuries out 5 years, thereby eliminating (as best as one can) their spending risk for the next 5 years.

For younger clients, your plan is run through a projection simulator that spits out 1,000 different ‘what-if’ scenarios of good/bad/ugly future return projections over the next 30 years.  

We are not caught off guard by a 16% US Stock Market correction.

Principle #2 - Diversification Works

Your investment portfolio, as well as your overall plan, is designed like a patchwork quilt, with different asset classes and investments working together to form a greater strategy.  Our investment portfolios generally include somewhere between 8-11 different asset classes spread across the entire world.  Even in an environment where most of the asset classes are off their highs, they’re not moving together.  Below is a quick visual of the year-to-date performance for a sample of 8 asset classes.  Despite being down year-to-date, some are performing better relative to others. This is exactly what we want.

Concentration helps create wealth, diversification helps protect it.

Principle #3 - Invest For The Long-Term

Here are those same 8 asset classes, zoomed out over the past 10 years.  Investors have been rewarded for taking risk in the past and I believe we will continue to be rewarded in the future.  However, that future may not come in the next 6-12 months.   I believe that people across the world will continue to be productive, working to make their families' lives better.  They will continue to purchase food, iPhones, whatever…and over time that growth will accrue to our globally diversified investments.   

Anything can happen in 5 months, but our investing life spans over decades. 

May this Memorial Day weekend bring peace and relaxation to your and your family.

-Andy