I'm letting you in on my New Year's letter to clients. Hope you find it helpful!

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Happy New Year!

I feel old saying this, but 2022 seemed to pass quickly! This may be a surprising statement coming from a financial advisor after the annual returns most markets produced. It certainly was a difficult year, especially for those positioned in more growth-oriented assets. The tech-heavy Nasdaq ended the year down -33.1%. The S&P 500, considered the best measurement of the stock market in general, was down as much as -25% before finishing at -19.4% for the year.

These numbers are sobering, but the measurement related to investing that really matters is how this difficult 12-month snapshot of the market might actually affect the goals and financial plans of individuals. The core of my practice has always been financial planing. The plans we make for clients drive the investment strategy, the risk exposure, and the volatility they are subject to. Market ups and downs are inevitable, so a better measure of investment success is how well the overall plan is tracking towards achieving all goals. Our planning software provides a “probability score” which is a simple and clear way to view the health of a plan. When your score remains above 75, you’re on track. Rather than gauging the state of your finances by a statement balance, the score provides meaningful, real-time perspective. A client whose score was in the high 80’s at the beginning of year might see a score in the low 80’s now. If it were possible, we’d like to always see scores increase, but this measurement helps to alleviate concerns far more than watching monthly account balances. If you are not sure if your plan has been established, or changes and updates are needed, please don’t hesitate to contact us with this important information.

Now some good market-related news . . . kind of. The year 2022 marked the worst return in history for Fixed Income securities (Bonds were down nearly -13%). How could this be good news? First, for nearly a decade, I have reserved the use of bonds mainly for diversification and hedging against the volatility of stocks. Because of the dismal interest rates associated with bonds since 2010, it did not make much sense to maintain a significant percentage in client accounts. With inflation coming back into the picture, everything has changed. For the first time in my 20-year career I’ve purchased Certificates of Deposit (CDs), considered the most conservative asset because they are FDIC insured. In the past few months, we have seen rates of nearly 5% without extending past a one-year maturity! Of course, inflation reduces the buying power of CD owners, but not everyone’s expenses rise in the same way. Where appropriate, in income-oriented accounts, we are now able to conservatively raise returns without exposure to the volatility of stocks.

So where are we headed in 2023? Like everyone else, my crystal ball is a bit foggy. Most economists are predicting a recession beginning at some point this year, although the all-important depth and breadth of the decline is uncertain. The attached report provides valuable insight into the effects of past recessions. Keep in mind stock market rebounds following bear markets have been powerful historically. The S&P 500 has bounced back an average of more than 20% within 12 months coming out of bear markets. Also, the strength of the early portion of recoveries is not something that long-term investors will want to miss out on.

I hope I’ve given you a dose or two of confidence through the perspective compiled above and the following report. If you have specific questions, or it’s been a while since we’ve updated your plan, don’t hesitate to connect with us.

Please know that I do not take lightly the responsibility you’ve given to me as your financial advisor, and I truly value your trust. I’m looking forward to working with you in ’23 and beyond!

Best Regards,

Jack