February Market Update from Correct Capital
EONOMIC & MARKET INSIGHT
Thursday, February 24, 2022. The impact on financial and commodity markets from Russia’s overnight attack was immediate and broad. We have continued to manage to, through and beyond multiple global challenges and market cycles. Each valued client has a comprehensive plan, and we have a process to assist in powering through life’s challenges and global crisis.
What does this mean for your portfolio?
Economic and market ramification of a Russian invasion into Ukraine is adding tremendous pressure to the global economy, markets and cause the market volatility to not only continue but increase. Historically, Fed policy, economic conditions and corporate earnings tend to be the more long-term drivers of the economy and financial markets, rather than an isolated geopolitical event.
Geopolitical events over the past three decades, ranging from terrorist attacks to the start of wars, markets have tended to bounce back relatively quickly. On average rallying up 4.6% in the six months following such crises dating back to 1990 and rising 81% of the time according to MarketWatch, Feb 21st, 2022, publication.
Correct Capital Portfolio strategy:
In October 2021 we reduced the overall risk in our core models by taking a portion of profits from high growth investments and rebalancing into more diversified defensive “value” investments. In addition, we have begun adding commodities and alternative investments to increase our yield and decrease our correlation to the aggregate bond market as yields rise. In January 2022, we maintained our defensive allocation based on valuations and prior years of gains and rotated more into value and out of growth stocks. We are not as concerned about missing some upside as the markets rally but rather focus on mitigating the downside risk as when the market is volatile and correcting.
Our proven portfolio design strategy of allocating between “cash”, “income” and “growth” allows each investor to maintain some peace of mind. The strategy provides access to cash reserves and income over a specific amount of time, based on your unique risk and time horizon to allow the “growth” allocation to recover before you may need to access. Finally, remember our comprehensive financial planning software accounts for all types of market cycles and sequence of returns including this one.
What to do now?
We recommend maintaining each client’s unique long-term perspective and strategy. Selling into a panic is a bad idea in most cases. Ned Davis Research studied the 28 worst political or economic crises over the six decades prior to the 9/11 attack. In 19 cases, the Dow Jones Industrial Average was higher six months after the crisis began. The average six-month gain following all 28 crises was 2.3%.
It is normal human nature and instinct, following a crisis to immediately sell your holdings and go to cash. History dictates that selling at these levels would be a mistake long term as we cannot time the bottom on when to “get back in” to the markets. History also teaches us that investors most likely be much better off not selling good assets due to panic. As Warren Buffet once said, “The stock market is a device which transfers money from the impatient to the patient.” Let’s be patient!
Please don’t hesitate to contact us if you have additional concerns, questions or just need to talk. Your continued satisfaction and peace of mind are extremely important to me and my entire team!Sincerely,
Brian I. Pultman, CFP® & the Team at Correct Capital Wealth Management
Stock Market Volatility 2022
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