The world is a chaotic place right now. There’s always a degree of chaos of course, but there seems to be an abundance of it currently – war, sky-high inflation, crime, market turbulence…and the list goes on.
It can be hard to stay centered. But, as investors, we have to.
Portfolio performance seems secondary when a strongman attempts to seize control of a foreign country through a brutal invasion threatening a wider war in Eastern Europe.
However, we all understand that Russia’s war against Ukraine carries economic and market implications regardless of whether those investment consequences are the main focus right now.
Generally, there’s a separation between matters of human rights, war, life and death, and money in our lives. But that divide can break down as traumatic events and circumstances wield their influence over our relationship with money.
Yes, the world seems crazy right now. The market seems scary.
So, let’s take a look at where we are in 2022. Stocks are down. Bonds are down. Meanwhile, the price of oil is up over 40% YTD.
From the chart above you can see that US stocks, international stocks, and US bonds are all down year-to-date. You don’t typically see bonds down when stocks are down.
But, as we’ve discussed numerous times this year, interest rates (and inflation) are up, so bonds have taken a hit too. I wouldn’t extrapolate too much from this. It will not persist forever.
Honestly, given the global scenario, I would’ve expected much worse for stocks and bonds.
The chart below is a good reminder of how volatile the market is on a normal basis. Corrections and pullbacks occur in good times and bad times.
The average year sees a significant intra-year decline for stocks (-14% drop on average). But most years still end in positive territory. Stocks are down -10% in 2022, declining as much as 13% at one point. So, by historical standards we haven’t even hit the average drop yet.
Now, does that mean things won’t get worse? No, things could definitely get worse before they get better. I hope they don’t, but I’m mentally prepared for worse.
I always feel a strange since of calm in chaotic times like this. Not because I enjoy it, but because I know the outcome for the market. I cannot predict when or why, but the market will recover, and we will continue on to new highs in the future. That I am sure of.
For our clients: your portfolio was designed for times like this.
We understand it can be unnerving to see losses in your portfolio. However, while diversification and global asset allocation cannot always prevent temporary losses, it does give us the durability and flexibility to fully recover and thrive when things turn around.