One Small Step in the Right Direction

Brett Lozowski

We have seen quite the whirlwind in financial markets this week. A 90 day pause in President Trump’s tariff policy fueled the stock market to its best day in over 17 years. US Stocks (S&P 500) have posted their first positive week in nearly 2 months breaking the 8-week streak of negative returns. Diversification continues to soften the blow from US Stocks decline which is why it remains an important part of our investment approach.

US Stocks (S&P 500 index) finished the week up 5% but remained down 9% for the year. Bonds have also experienced turbulence with changes in interest rates declining 3% this week. Despite the weekly declines, bonds have still produced positive returns this year, and International Stocks (Vanguard total international stock index) remains up 2% on the year.

Certainly, the declines in financial markets these past few weeks have been unnerving. Rapidly changing economic and foreign policies have created fear for investors about the future of our country and financial markets.

Many of you may be thinking: What should I do with my portfolio? Should I sell my stocks?

Selling stocks solves a short-term problem in reducing volatility for portfolios in the near term. The challenge with market timing is it requires you to have to be right twice: when to exit the financial markets and when to reenter financial markets. Trying to time the market is one of the costliest decisions you can make for your portfolio.

As famed investor Peter Lynch once said “Far more money has been lost by investors preparing for corrections than has ever been lost in corrections themselves.”

The financial markets remain forward looking and can rebound quickly. For example, this week a Truth Social post by President Trump caused financial markets to sharply rebound because it seemed to be a bit of good news. Missing out on good days can be costlier than trying to avoid bad days ahead.

Each crisis can feel like the end of the world when it happens. I wish I had a crystal ball to tell you when this latest crisis will end. However, history has shown us that financial markets have rebounded from every unprecedented crisis thrown its way.  

Hang in there. We know what’s going on in the world isn’t easy to digest. We are just a phone call away if there is anything on your mind you want to discuss.

A Note on Individual Bonds

As you many know we are very fond of using individual bonds in your portfolio. Individual bonds help diversification from the stock market and provide stable income streams for your investment portfolio.

Changes in interest rates cause bond prices to fluctuate. If interest rates go up, the value of your current bonds will go down. Likewise, if interest rates go down, the value of your current bonds will go up.

Recently, many of the individual bonds have been negatively impacted by rising interest rates causing them to show at a loss in your account. Many of you will see “red” when looking at your current bond values. Should you be worried about the depreciation in bond prices?

The answer is no.

In our approach, we always hold individual bonds to maturity. What this means is you not only get back all of the money you put into the bond (your principal) but you also collect interest payments along the way. These interest payments are not reflected in the bond price.

What does the bond loss showing on the Fidelity site actually mean? In short, this is the price reflected if you were to sell your bond early before it matures. Since we don’t sell your bonds, the price you see at Fidelity doesn’t matter. We also buy very high-quality bonds that have a proven track of record of paying back their debts, and most of these bonds are insured.

Long and short of this? When you see losses for your individual bonds, you can simply ignore them! Rest easy knowing that the bonds are doing their job and acting as your safety net along the way.

If you have any questions about the bonds or anything else in your portfolio, please give me a call! I always love to talk about your investments.

Updated ADV Brochure Offer

It is that time of year again where we offer you an updated copy of our Form ADV disclosure brochure and privacy policy. Form ADV is the filing we provide the Securities and Exchange Commission (SEC) that contains information about our firm. We have uploaded a copy of the ADV to your vault along with our privacy policy. You can also access our ADV filing HERE and our Privacy Policy HERE.