Halfway Through the Year, Here's What You Should KnowA Letter to Our Clients

6/30/2022 - By Saltmarsh Financial Advisors

After growing 90% the prior three calendar years, as of the writing of this letter, the U.S. Stock Market has posted a YTD return of -21%, International Developed Markets -19%, and Emerging Markets -16%. Why? In one word: Inflation. More specifically rising oil and gas prices, food costs, housing, and the rippling effects of 2021’s headlines: additional stimulus, lingering supply chain issues, job vacancies, and a hangover from the Great Resignation along with heated 2022 midterm elections.

We expect markets will continue to experience volatility. While timing economic expansions and contractions is difficult, the market has consistently been a leading indicator and emotions can often be swept up in the recurring ebb and flow. In light of this, our client’s portfolios are always broadly diversified across industries and geographies comprised of high-quality companies and a strategic focus on shopping for value opportunities which can routinely occur when markets are in an oversold position.

We rely on the stock portion of your portfolio to outpace inflation over your investing lifetime and include real historical negative returns into our planning and asset allocation recommendations. We continually review portfolio asset allocations along with changes in the financial markets.

The U.S. Bond Market is also down this year, with 10-year Treasuries returning -10% YTD. Why? Rising Interest Rates. Interest rates have been historically low since the Great Financial Crisis of 2008. To combat inflation, the Federal Reserve Board has begun to raise interest rates. While rising interest rates are ultimately a long-term positive for bond investors, there is a temporary negative side-effect. Interest rates have an inverse relationship with the price of a bond. When interest rates go up, bond prices typically go down. All things being equal, investors seek bonds with higher interest payments to help combat inflation. Unfortunately, we are currently experiencing dislocation in the bond market as interest rates reset and bond portfolio managers add or replace bonds with higher expected future returns.

What are we recommending?

Over the coming weeks, a member of Saltmarsh Financial Advisors will reach out to review your current asset allocation, discuss your specific circumstances, and update retirement projections as needed. In the meantime, this is broadly where we feel our clients are best positioned to meet their long-term financial goals: While we are not advocating for wholesale changes to clients’ portfolios, we are discussing the possibility of accelerating rebalancing to increase cash reserves for spending needs or to raise funds for upcoming Required Minimum Distributions (RMDs) for retired or soon-to-be-retired clients.

For our pre-retirement age clients or those holding excess cash balances, we will discuss techniques to leverage your longer time horizon in these market conditions.

Regardless of where you are in life, we recognize that the current market environment can be unnerving. While we cannot predict how markets will respond over the short term, as any number of national and global macro events can influence outcomes. We are confident in our approach and the 40+ years of research that validates our investment philosophy (and the research from Dimensional Fund Advisors) and continue to advocate that the most reliable way to reach your financial goals is to remain committed to your plan and engage with your Saltmarsh advisory team about your unique circumstances.

Questions?

If you have any immediate questions or time-critical needs, please do not hesitate to reach out to a member of the team. For more information, read our latest Investment Update and sign up to receive them straight to your inbox.