For the first time in a long time, I can safely say that here is something you have not seen before: the last time we were in a period that resembles anything like this, people were standing in lines for their fuel and beta max was trying to make its debut. Record high inflation, rising interest rates to combat that inflation, Russian aggression in Europe…. it has been a while, but the market has seen all of this before. So, if you remember back several quarters I started with the statement “what’s new is old is new again,” very much that is where we are. The market does not understand the phrase “this is new”. It has seen it before; it will live through it again. That does not mean that we can just throw up the blinders and ignore what is happening around us, but it does mean that anyone trying to sell you on a product that is “sure to work” in these types of situations, is probably only trying to sell you something that makes them a nice profit.

In the first quarter you saw and heard a lot about a pull-back in the markets. The bulk of the pull-back was in full swing before the new year had even rung in. We would need to go back to November to start the pull-back in the US markets, and we would have to go back to the summer of last year to start the pull-back in emerging markets. By the time the media starts to talk about something, it is usually well underway, if not already passed. Through all this, the thing to remember about the stock market is that it looks for only one thing, clarity. As we moved into the beginning of the year, there was great uncertainty as to the direction of inflation, of the Russian movements against Ukraine, and that of the Fed. Once we received clarity on those items, the markets stabilized and started to move back to where they had been.

Regarding inflation – we now know that inflation will be with us significantly longer than the transitory nature that Washington pushed it would be all last year. Now this means two things: first, the actions of the Fed are already a little bit behind where they should be because of how long they waited to act, and second, when the 7% inflation drops to 5% inflation, do not jump on the declining inflation band wagon. Declining inflation does not mean that prices and the cost of goods is going down. It simply means that they are not climbing as fast as they have been. The labor market is too tight, and the supply chain is still too disrupted to allow for prices to moderate soon. Look for this to be a continued theme into 2023.

Raise your hand if you think that the “safe” part of your portfolio is the fixed income or the bonds that you are holding? Keep your hand up if you think they will always provide stability when the stock part of the market goes down? As we closed out the first quarter, the S&P 500 was down about 5% and the US aggregate bond index was down about 6%. With increased interest rate increases out of the Fed all but certainly going to continue throughout this year (and with the low level of coupon income available compared to decades past), fixed income is no longer the safe and easy asset class that it has been in the past. Rising interest rates when combined with high inflation cause problems for the bond market. Our positioning in the bond market has been designed to limit the impact of rising rates (as best as we are able) – and your primary advisor will be talking with you throughout the year about other options for limiting overall bond exposure, while not also being overexposed to the volatility of the stock markets.

In the past several quarters, I have closed out these notes with a reminder that personalized, comprehensive financial planning, done with an advisor that has a fiduciary relationship with you, is going to be the best medicine for turmoil in the markets. That is still the case today. This quarter though, we need to talk more specifically about planning ahead with your investments.

There are still many people out there using the term “financial advisor” that have no obligation to work in your best interest, and they are still trying to sell you products that do not work in the type of inflation and interest rate environment that we find ourselves in today. But, because they play on the same fear and emotion that the media uses to keep you coming back each day, they are able to stay in business and keep peddling product. Quality investment allocation starts with your needs and goals and is built up from there. Sometimes it means making recommendations to you that may make you feel uncomfortable or go against what you may have done in the past. That is okay. As a fiduciary asset manager it is not our job to simply do what may make you feel comfortable. It is our job to make recommendations and give advice that, in our professional opinion, will be the best way to help you to meet your goals. It is also meant to spur conversation with you to ensure that we are properly educating and informed on why a particular recommendation is the best positioning for you. Being a fiduciary asset manager means looking out for you and looking ahead for you, because in the end we are here for you.

The talented team that we have assembled here at Midwest Financial Group works with a singular focus: to help our clients and their families achieve the success that they are looking for. That may be with wealth management, tax planning, estate planning, insurance and Medicare planning, succession planning for businesses, benefits, and plan options at work, or any of the growing number services that our team of specialists are able to provide to you. Remember: when in doubt, shut off the TV, throw away the newspaper, unplug the computer, put down your smart phone, and meet with your advisor when questions arise.

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