2022 Market Reflections and Looking Ahead to 2023

Financial advisor and CERTIFIED FINANCIAL PLANNER™ Colin Day continues his series of videos and podcasts getting to know the people who help Correct Capital Wealth Management and our clients thrive. He recently sat down with founder and CEO Brian Pultman, who discussed his reflections on the 2022 market, and his anticipations for 2023.

For recent investment news and our take on the current market, retirement planning, and investment, listen to our Capital Conversations podcast or view our recent blog posts.

Below is the transcript of our most recent Capital Conversation podcast episode, “2022 Market Reflections and Looking Ahead to 2023”

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2022 Market Reflections and Looking Ahead to 2023

Colin Day: Well, welcome everyone to another Capital Conversation. I’m Colin Day, CFP (CERTIFIED FINANCIAL PLANNER™), with Brian Pultman, CFP (CERTIFIED FINANCIAL PLANNER™). Brian, thanks again for joining us.

Brian Pultman: Thank you, Colin. Great to be here today.

Colin Day: We are doing a year end recap and 2022, unless you've been under a rock, was a pretty rocky one. So, we wanted to talk today about what we saw in 2022, how we communicate with folks when we see the tumultuous waters, and then where we think we might be heading in 2023 and what we're hoping to see in the near future. So, it's not all going to be doom and gloom, right? You don't think?

Brian Pultman: Correct.

Colin Day: Well that's good. So let's start here, Brian. Looking back on 2022, what's something you'll remember when it comes to those big stories that affected the market?

Brian Pultman: Inflation. There's no question. It's been since the 1980s, I remember back in my college days when inflation was peaking at 12, 14 percent, that this is the first time most of our clients have ever had to experience any type of inflationary market cycle.

Colin Day: From an expense perspective, would you say that our clients who were needing funds, because we work with a lot of pre-retirees and retirees, do you think they were withdrawing more to battle against that inflation? Or do you think the way that their accounts have been set up or their cash on hand, was sufficient for them so that they didn't have to feel like they needed to make big withdrawals just because groceries and gas and other things are going up?

Brian Pultman: Cashflow-wise, our clients were in good shape. The key thing was about people that want to make large capital expenditures like a home and/or a car. So, in most cases we try to put off those types of large purchases just because the supply and demand, the markets, were disconnected, especially in the used car market. Over the years, you may have been able to buy a used car for a good discount from a new one. Today, used cars are almost 90 percent the price of a new one. So if people can hold off another year or two until the market stabilizes once again, we encourage them to do that.

Colin Day: With those large expenditures, like you said, the inflation then has an influence on the interest rates that we're all seeing. And so mortgages, car loans, as examples are really inflated from where they were even a year ago. When you think about things we were communicating to clients then in 2022, because as we saw in the market, and whether you judge it by the US or the bond market, things were down by double digits. In a year like that, this is really where financial advisors shine. This is where we try to communicate our message, and why we are investing the way that we're investing. So if you think back to last year, and probably where we are still in 2023, what's the message? What's the message you've been delivering to your clients?

Brian Pultman: The key message is we want to keep our wealthy clients wealthy. And in markets that we had last year in 2022, it's normal. If you're going to be an equity investor, you have to be prepared to have cycles of this magnitude. On average, the market will drop 10 percent three times per year. So you look at the year and we finished out 20- to 33-percent down on the index, depending on what index you're looking at. We are very fortunate that our portfolio team started taking a more defensive approach a year ago, in October ‘21, than in January, March, and July to be more defensive. So, at year end, our numbers work quite a bit better in terms of losing less, let's just say, than the relative benchmark. But the key thing is to help our clients reach their goals. And, right now, we want to let them know that we just don't want to sell from the growth bucket, with enough income and cash to get them through this market cycle.

Colin Day: True. As I've tried to explain to some clients to say, “Hey, our portfolio management did a pretty good job last year.” But, it is putting lipstick on a pig when you're still in the negatives and it's almost impossible, unless you're incredibly focused on a very particular market sector to actually see growth and see green numbers as opposed to red on that spreadsheet. So for us, the way that I've been communicating with folks, is just making sure that we have your timeframe in mind. It could just be as simple as saying, “Hey, if you're 50 years old and you're not planning a retirement for another 10, 15 years… We're going to have market cycles. Recessions happen every six to seven years. We're going to go through many of these before you even retire. And then when you're in retirement, we have 20 to 30 years, and so we're probably going to rinse and repeat four or five times.” So we want to make sure that our clients feel like they are having service, because I feel like a broken record a lot of times when I'm telling folks, “Hey, we understand that we have this time period. We just have to get through it. I know things don't look good now, but things will look rosier later.” Because that then really raises the question of, “Well, what are you doing now? Are you sitting on your hands, Colin? Just letting the market have its way with my account?” And that's not the truth. That's what our portfolio managers – what Joe and Ryan are up to. They're trying to make sure that they are positioning accounts the best way possible for not just the next six months, but even years into the future.

Brian Pultman: Correct. So the idea there was back at the end of ‘21 and the beginning of ‘22 to position us to be more defensive. As we went through the year, we decided to take advantage of the losses in the fourth quarter and start capitalizing losses that we can carry forward to help people be more tax efficient in the future. So, as you mentioned, the key positioning right now is about recovery.

Colin Day: We're about midway through January, so 2022 is in the rearview mirror. So, looking to 2023. What are your expectations when we think about, more specifically, the stock market, maybe not who’s going to win the Super Bowl a couple weeks from now?

Brian Pultman: Right. I mean, no one really knows the future short term. Longer term, we're still optimistic. We really feel that the economy will not go into such a deep recession. And we feel that companies are still doing well. As we move forward, we want to make sure that people, once again, are averaging a little bit more than the equities while they're down. But, then again, with tax-free bonds paying 4, 4.5 percent, that's not a bad place to be parking some money.

Colin Day: For those clients that are fearful or just trying to battle inflation, sometimes it’s more productive to let the growth bucket, like you explained, that longer term focus, that more aggressive focus on certain accounts, to let that ride, but then being intentional on how we're positioning things that are within our control. Sometimes it is that most basic thing of, “Hey, if I have cash in a money market fund that's still paying quarter, half a percent if you're super lucky, maybe this is a reason enough that we need to start to explore other kinds of cash resources, treasuries, high-yield savings accounts, CDs now are slowly coming up in rates.” So, it’s never a bad time to have a conversation with your advisor if you have questions about where you should be positioning yourself.

We'll wrap up here, Brian. So, thinking about 2023. It's a two parter – so I want your hopes for the year when you think about the market, and then for our clients, people that we serve.

Brian Pultman: Well, the hope of the year is that we have a healthy year, number one. Two, that we have the opportunity to communicate more with our clients. I mean, I wish we could talk to everybody every single day, but the reality of it is it's difficult to reach people and the magnitude of clients that we're blessed with. But the point is, as we go forward, understanding what's most important to them, making sure we have their plans intact, we understand what's most important to them, and let them realize that our financial planning tools take into consideration these types of market cycles. In most cases, as a matter of fact I cannot think of one, that even this market pullback has changed the direction of any of our clients’ plans, retirement or long-term goals.

Colin Day: Great. Brian, thank you again for joining us today. I always appreciate it and I'm sure our viewers and listeners appreciate it as well.

Brian Pultman: Thank you, Colin. Have a great day.

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