Just over two years ago, at the onset of COVID, the S&P 500 reached its pandemic low of 2,237 on March 23, 2020. Two years later, the S&P 500 had doubled to 4,456. One of the worst things an investor could have done was to panic, make a knee-jerk reaction and move to cash during this time. There was so much unknown related to COVID and not only the human toll it would take, but also the economic one- with parts of the economy being shut down for several months (even longer if you lived in certain states). There is a lot of noise in the financial media and reasons for investors to act irrationally, but a time-tested strategy is to not make knee jerk reactions and panic, but to stick to your long-term strategic asset allocation. Working with an advisor, you outline your investment objectives and risk tolerance, and develop an allocation that will meet those objectives – a game plan has been established, but it takes discipline to stick to that plan when chaos erupts.
We are going through another chaotic time with the war in Ukraine, inflation at levels not seen since the early 1980’s, and the Federal Reserve beginning to raise interest rates to combat inflation. The markets have not been kind this year, with pain felt not just on the equity side, but also the fixed income side, with the broadest bond market index down 7% through the first three months of the year, and the average 60% stock/40% fixed income portfolio suffering a similar fate. Markets hate uncertainty and there is no shortage of that right now. Will inflation be long-lasting as the word “transitory” has disappeared from Chairman Powell’s vocabulary, or are we close to a peak? Will the Federal Reserve be as aggressive in increasing interest rates as they portray, or will several months down the road, their tone turn more dovish as they try to navigate a soft landing (in market speak, that is successfully mitigating inflation while subsequently not sending the economy into a recession)? Will the war in Ukraine lead to conflict elsewhere in eastern Europe? These questions don’t have clear answers but one question that you need to know the answer to is – do I have a game plan in place?
Reference: S&P 500 from March 23, 2020 – March 23, 2022