I have only heard stories and read about living through the 70s. But it doesn’t take a long time searching to find the articles about supply and price concerns with energy, the antagonist that is Russia (and their potential nuclear threats), staggering inflation, climbing interest rates. The problem is this wasn’t a history lesson – it was the reality of 2022.

However, if that doesn’t give you reasons for hope as we move in to 2023, it should. If you were to go back through all the versions of this letter that I have sent to you, there are two statements that appear in almost every letter. The first is that when you are concerned or have questions, set up a time to meet with your primary advisor and find out how what is going on in the world does, or doesn’t impact you. The second is, we’ve seen this before. Tell me what we saw in 2022 that we haven’t seen before? We may have not seen them so rapidly pushed together to happen at the same time. But every other part of it we have seen a variance of at some point in the past. As it always has in the past, the market will react to the news, create a new foundation, and start the movement forward.

As we look at the markets for 2022, let’s start with fixed income. In 2022, the rate on the 10-year treasury rose over 150%. This is a direct reflection of the continued interest rate increases coming from the Fed in response to persistent higher inflation. While it appears that inflation may be coming off its highs, it does not appear to be returning to the 2% level that the Fed is looking for (at least not yet). The Fed has indicated that they will be continuing to raise rates into the beginning of 2023. This increase in rates has been great for rates on savings accounts, on CDs, and on the return you receive when holding treasuries. It has not been great for the mortgage market, and it has not been great for the bond market. While the bond market has seen a slight increase in the yields that they have been able to deliver, bonds have suffered greatly with this level of rate rise. As represented by the Agg, the broad bond market was down almost 15% in 2022. This was only the 9th year that the bond market and stock market were down in the same year, and the first year that bonds were down in back-to-back years. We have continued to remain positioned shorter in duration on the bonds we are using and were able to insulate from much of the pain seen in the bond markets this past year. We will probably begin to add duration back in in 2023, with the timing depending on the direction of the fed.

When we look at the stock market, there isn’t a lot that I’m going to tell you that the media hasn’t blasted across their platforms all year. All indexes were down, with Tech leading the charge. Mid cap indexes also were outsized to the downside. Value oriented and dividend aristocrats outperformed comparatively on the year, and Energy was the clear leader with the recovery in oil prices. As we move into 2023, the best piece of advice that I can give you for owning equities is to do as a part of a plan, and to do so in a diversified way. Many times, being diversified means always having something that isn’t doing as well as the rest, but that is what it takes to have consistent returns over time. No one can time or predict the market in the short term. Strong diversification and a planning approach to stock selection can help with delivering consistency.

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This time of year, and especially when it comes on the heels of a negative market, it is easy to question what you have done in the past and wish that you would have done something different. It is an easy trap to fall in to because you are looking backwards with information that you couldn’t have possibly had until now, because you can’t predict the future. When it comes to your investments, it is very easy to look at products and options that did well when other things did not.

If someone starts a product introduction to you with “last year it would have”, use that as your cue to walk away. The easiest thing to do in investing is to look at what did well yesterday and claim that you know what it will do tomorrow. Many times, advisors and agents will use tactics like this in times of fear and uncertainty to sell you a product that is only beneficial to their pocketbook. This is why we place such strong value in our planning process. It is not based upon a product. Your financial plan is based upon you, your goals, and your values and then built upwards from that sound base. As a part of your planning, we will use investments, and insurance products, and recommend certain allocations, or planning tools; but all those pieces come second to our values based financial planning. As you look through 2023 and to the future, remember that the power lies within the plan, and having a plan is the first step to a strong future.

Personal individualized planning will always yield your best results and will continue to be the core focus of everyone on our team at Midwest Financial Group. We look forward to talking more as 2023 evolves. Remember; when in doubt, shut off the TV, throw away the newspaper, unplug the computer, put down the smart phone, and meet with your advisor when questions arise.