The lyrics of the old Chicago song Old Days sound hopeful by recounting the past. During times like this it is sometimes difficult to think about anything positive!
Most D&A clients got a hopeful email update in late July extolling the positive trends we had seen in the markets after a miserable first half of the year. However, the giddiness of July turned to dismay in August as markets retracted due to clearly hawkish statements by the Fed in its determination to slow economic growth to quell inflation. The Ukraine/Russia conflict and its adverse impact on geopolitics, energy markets and global economies added to the negative bias. So, nothing new here; we have seen this movie before!
By now, we have all seen enough “seas of red” and downward sloping trend lines for a lifetime. I will NOT accompany this blog post with any of that material! But, I will highlight the highly unusual and unavoidable fact I have reported all year and in No Zig that “bonds have performed almost as badly as stocks. There has been no “zig” to offset the zag!” Year-to-date, investment grade corporate bonds (LQD) are down -16.2%, exactly the same as the S&P 500 (IVV) at -16.2%. Interestingly, we have seen pockets of relative outperformance (short bonds, SLQD), but they have been accompanied by relative underperformance (international markets, SCHF) impacting all diversified portfolios.
What do we do? Philosophically, my views are unchanged; the best approach is to think long term. One of my favorite books, The Rational Optimist by Matt Ridley, chronicles the history of human adaptability to improve its lot. For example, he presents at length the impact of how innovation has improved the quality of life and incomes over time and how the rate of change continues to accelerate. Of course, none of us has centuries (though some of you DO have decades!) to see a recovery!
But, as I said in No Zig, “As bad as it has been, if you have a long time horizon (10 plus years) and capacity for risk (employed, with no need to tap your investments), history shows that “sitting tight” will reward the patient investor. No guarantees, of course!” If you have a shorter time horizon and a special situation, we develop a special plan to help you achieve your goals.