The Master’s Minute

Helpful Tools and Tips

Weather The Storm

by

It is no secret that 2022 has been a challenging year for investors. Both stocks and bonds are negative for the year, something that has only happened two times (1931 and 1969) in market history. These types of years in the market do not come often, but when they do, it can be difficult to know how to react and navigate the choppy waters wisely.

Our adage for the year has been to focus on ‘weathering the storm well’. We do not want to move too rapidly in one direction or the other when the waters are choppy, and we certainly do not want to jump out of the boat! We aim to navigate the storm calmly and rationally, even when everything around us says we should do the opposite.

So, what does this mean practically? In a year like 2022, it has meant diversifying away from the more volatile parts of the market. Here are a few examples on how that has played out so far in 2022:

  • The Dow Jones Industrial Index, made up of larger, ‘blue chip’ U.S. stocks, is down 5.22% year-to-date while the Nasdaq Index, made up of more technology and growth stocks, is down 28.20%.
  • Internationally, ‘value’ stocks are down 7.06% year-to-date while ‘growth’ stocks are down 21.99%.
  • Short Term Bonds are down 5.78% year-to-date and carry a current yield of 4.66%, while Long Term Bonds are down 25.41% and carry a current yield of 4.90%.

Even in a year that has been broadly negative, there have been significant benefits to diversification. Investors who concentrated themselves in the higher-growth areas of the past have seen significant downside vs. those who maintained a steady, disciplined asset allocation. The reduction in volatility provides real world benefits as illustrated by these two hypothetical portfolios:

Starting Value of $100,000. For illustrative purposes only.

Despite the same average annual return, the investor in Portfolio 2 ‘weathered the storm well’, resulting in an ending value 32% higher than the investor in Portfolio 1, illustrating the value of a steady, disciplined approach in difficult markets.

How can we help you continue to ride through the storm successfully?