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Are we there yet???

Are we there yet???

Seems quite appropriate for us to be asking this question – not for our family summer vacation to see if we arrived at our long sought-after vacation spot, but rather are we THERE yet. THERE means the point at which the market finally settles down…. when we can sleep better at night without seeing the news about COVID, inflation, rising interest rates, and the like.  The short answer is no. We aren’t there yet. Economists had hoped that we would have some stabilization in the market. However, inflation had other plans. We have seen a time of real price increases in the cost of living when we go to the grocery store, fill our cars with gas, book a flight, and rent or purchase a home.

Interest rates have been quite low for some time and now are retreating from their all-time lows.  That means that interest rates are rising for all types of lending – homes, cars, other consumer credit.  When interest rates rise, the corresponding value of the bond investment goes down. The Federal Reserve seeks to use this monetary policy to combat inflation. The Federal Reserve influences interest rates as a tool to either cool down a hot economy or jumpstart an economy. At this point, the Fed wants to slow down the economy, creating higher interest rates which curb demand and hopefully push down prices, which brings us to the supply chain problem.

For most of the pandemic, the shortage of supply of goods from China, as well as the buildup of container ships off our ports and the delay in consumers receiving those goods, helped to create an increase in demand and inflate prices. We have seen product shortages around the world – from computer components to aluminum to food products (think baby formula), plastics, building materials and more. This supply chain problem had a trickle-down effect across the world and caused global strain. These supply chain issues are another head wind. This means shortages/reduced supplies in various consumer goods and commodities, which, in turn, mean higher prices.

Earlier this year, economists thought that the inflation we were experiencing was transitory, meaning that once the supplies went back up, prices would normalize. It didn’t. Prices continued to rise throughout the spring and into summer with gas, food, utilities, and housing leading the charge. These are referred to as consumer staples – items people need to thrive and survive. This is all part of the economic cycle – the same economic cycle that we learned about in high school and college. There are peaks, troughs, and spots in between.  We are in one of those in-between spots right now.

Many of you have experienced the effects of inflation and interest rate hikes in your lifetime and for others, this is your first rodeo. Our Reality-Based Investing approach relies on several principles to help you combat the negative forces impacting your finances. One of these is the power of the dividends to provide a reliable source of income, as well as the potential for growth through reinvestment of those dividends. Equities (stocks) provide dividend income and the potential for growth. Bonds provide interest income and can provide market value growth with a decline in interest rates.

For the past few years, we have experienced many market ups and downs evident on the front page of your monthly statement, which shows the total market value of your portfolio at a given point in time. The total return of your portfolio equals income + growth of those investments. The reliable portion of this equation is the income, while the growth portion is associated with an increase in value of your investments. However, it can also be a negative number, such as when we experience a loss of market value. Our strategy is built around the income, and we consider the growth to be extra or “gravy”. However, we don’t expect or rely on growth.  We sure appreciate growth when it happens. Growth just means more – or provides more -- when you do not have to rely on this growth to provide income in good and bad markets.  For investors who do rely on their portfolio to provide an income stream, income is generated from the investments, rather than by selling shares to create the needed funds.  

With this in mind, we are continuing to invest in areas which can provide a hedge against inflation and the rising interest rate environment. These sectors include Energy & MLPs (Master Limited Partnerships), Real Estate (Real Estate Investment Trusts), Utilities, Materials, Commodities, Infrastructure, Floating Rate & Senior Loan Bonds, Convertible Bonds, Inflation-Protected Bonds, Dividend Paying Companies, and Value Equities. Fortunately, many of these sectors provide dividends and interest income with the potential for growth. We have not forgotten the sectors that are more closely associated with growth, as some of them have been negatively affected by the supply chain issues and other forces, and they are selling at a reduced cost. These include, but are not limited to technology, communications, and healthcare stocks. In essence, diversification can provide another defense against market risk.

We have often been asked about when to get in and get out of the market. Simply put, historically, timing the market does not work. You cannot accurately predict when the market will go up or down. It’s not a prudent strategy. Market timing opens you up to more market risk. Investing is a long-term venture. You will have years where your portfolio is up and years, potentially, when it is down.

As discussed earlier, MAKING SURE YOUR GOALS ARE AT THE FOREFRONT IS THE KEY. We believe that the best advice, which is hard to take, as we are investors too, is to stay the course and adjust when YOUR goals change.

So, what does all of this mean for you? Check to see if your long-term goals have changed. If your goals have changed, please contact us, so that we can review your investment plan and make sure you are well positioned to meet your goals. We also suggest reviewing your important documents, such as beneficiaries, powers of attorney, trust/will, and budget.

If you, your family or friends have questions, and would like to schedule a time to talk to one of our advisors, please feel free to reach out by calling our office at (480) 935-7533 or by email at info@bartonspectorwealth.com.

So, are we there yet? Not yet…. but we are with you to help navigate the ride.

 

 

Sharon L. Barton                              Jay R. Spector, CFP®

Partner, Wealth Advisor                Partner, Wealth Advisor

 

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.

Dividend payments are not guaranteed and may be reduced or eliminated at any time by the company.?

There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.