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Wealth Management

It’s Not Just About the Money

By Pat Grenier

We have a well laid out plan for how our wealth-building investment portfolios will provide us with the lifestyle we want, confidence in our financial strategy that we believe we deserve, and the legacy we want to leave our loved ones.

Inflation, rising interest rates, high gas prices, the war in Ukraine are non-trivial distractions that test our ability to stay calm and focused. As Mike Tyson once said, “everyone has a plan ‘till they get punched in the mouth.”

Pat Grenier

Pat Grenier

For many depending on their 401k plans, their IRAs and/or their investments, this is a gut-wrenching feeling. It certainly is painful to watch the value of our monies depreciate — especially in an inflationary environment. Emotions can take over and cause anxiety, nervousness, and fear. You are not alone. These feelings are real and may drive the person into a decision that may be irrational, absolutely the wrong one at the wrong time.

Until we address these feelings with facts and common sense, we will not be able to make rational decisions about our investments and the impact it will have on our lives.

As a start, let’s put the current market environment in perspective. As with any market decline, we don’t know when it will hit bottom or how long it will take for markets to come back. What we do know, and history has proven, is that market corrections occur periodically and have been short-lived:

 

As much as anyone would like to avoid these declines, they are an inevitable part of investing.

Looking back at the 15 largest single-day percentage losses in the S&P 500 since 1960, we see that investors are rewarded for staying the course:

Warren Buffett said it best “American magic has always prevailed, and it will do so again.” Can you think of a year where there was not an event that had a negative impact on the economy and investments? It is reassuring to know that despite these annual headwinds, the U.S. economy is resilient and has always recovered.

As much as the fearmongers want us to believe the world is falling apart, we should know better than to listen to the 24/7 negative news cycles. For our own sanity, we need to focus on the positive. Our economy continues to open after the closures due to the Covid pandemic, there are plenty of jobs for anyone that needs one and consumers are still spending. To our surprise many corporations for the first quarter of this year reported higher-than- expected earnings. In addition, in spite of higher mortgage interest rates, pending home sales rose in May. This should provide us with optimism for the economy, even if the ride is bumpy.

Famed British Banker, Sir Baron Nathan Rothchild, is credited with the phrase “buy on the sound of canons, sell on the sound of trumpets.” The old adage ‘buy low and sell high’ makes sense but is one of the most difficult principles to follow and act upon.

Markets decline on negative news. The negativity creates fear, but the decline presents an opportunity to reassess our investments, our allocation, our risk tolerance and to take advantage of quality investments that may have been beyond our reach. If time is on your side, buying on sale makes sense.

It is not just about the money. Investing is about having the right frame of mind to make our money work efficiently and effectively.

 

Pat Grenier, CFP® is president and founder of Springfield-based Grenier Financial Services; (413) 736-6712; [email protected]

Securities and advisory services offered through Cadaret Grant & Co., an SEC Registered Investment Advisor and member FINRA/SIPC. Grenier Financial Advisors and Cadaret Grant are separate entities.

Wealth Management

A Seeming Disconnect

By Jean M. Deliso

Have you wondered how the S&P 500 stock-market index has been trading at near all-time highs when, in the second quarter, S&P 500 corporate earnings were down compared to the first quarter of 2020, daily confirmed cases of COVID-19 in the U.S. are currently stable or declining, and the Bureau of Labor Statistics’ July unemployment report showed more than 16 million unemployed Americans, with an unemployment rate of 10.2%?

That question is a good one, with the seeming disconnect between what the stock market has been doing and what we are seeing in the news and the U.S. economy. No doubt the stock market was arguably pricing in what the economy will look like a year from now and what the market sees as significant pent-up demand, a fading pandemic-induced economic impact, and a wall of liquidity coursing its way through capital markets.

The real question is whether investors should be concerned about the U.S. stock market hitting all-time highs with the economy still bruised and slowly recovering. Could this mean a crash or major correction is coming?

Jean Deliso

Jean Deliso

“There is a chance the economy one year from now will be in better shape than it is today — or it may be worse. But being a participant in the market for the long haul means participating in the growth and losses that happen between now and then, and always focusing on your investment time horizon.”

No one truly knows the answer to that question. But we know that market corrections and bear markets are normal and common; we just don’t know when they will arrive or how long they will last. And if anyone tells you ‘with certainty’ when a market downside is coming and how long it will last, you might want to run the other way.

When thinking about where the markets and economy could go in the next year and beyond, it’s useful to break it down by key categories:

Economics. The pandemic-induced recession has been steep and ugly. But there is a good argument that the worst of the crisis could be behind us. Manufacturing and service activity have rebounded, the housing market has seen very solid activity, and spending has outpaced expectations, according to the Washington Post.

Earnings. Second-quarter earnings were bad, plain and simple. But at the same time, earnings were not as bad as the double-digit expectation of Wall Street, and clearly stocks love positive surprises. Will earnings continue to improve going forward? That is the question — and we all hope the answer is ‘yes.’

Interest Rates. Overnight rates in most developed countries are near historic lows, meaning borrowing costs and financing costs are highly attractive for businesses and individuals that can obtain loans. The Federal Reserve also signaled plans to keep interest rates near zero for years; these actions make equities attractive by comparison.

Inflation. The amount of global stimulus is massive; the total global fiscal and monetary stimulus being deployed amounts to approximately 28% of world GDP, according to the Wall Street Journal. This ‘wall of liquidity’ makes inflation seem more likely in the coming years and will be a factor to watch.

Sentiment. Consumer and investor sentiment is improving in the wake of the pandemic, but may sour as the election nears.What’s the bottom line for investors? The nature of bull markets is that we can expect the stock market to reach new highs over time. This is what history has told us to expect every time. That said, I would caution against seeing an all-time high in the S&P index as a reason to go completely defensive. When setting a long-term investment strategy, it is important to consider how the economy may grow or contract in the next six, 12, or even 18 months, and how that plays into your personal goals and objectives. If your retirement date is close, it is always prudent to review how much safe money you may need to weather an unexpected storm.

There is a chance the economy one year from now will be in better shape than it is today — or it may be worse. But being a participant in the market for the long haul means participating in the growth and losses that happen between now and then, and always focusing on your investment time horizon.

Jean M. Deliso is a registered representative offering securities through NYLIFE Securities, LLC (member FINRA/SIPC), a licensed insurance agency. Deliso Financial and Insurance Services is not owned or operated by Eagle Strategies, NYLIFE Securities, LLC, or any of their affiliates.

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