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Registered Investment Advisor
95 Broadhollow Road, Suite 102
Melville, NY 11747
(631) 923-2485
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Investment Newsletter - Q3 2022 |
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Greetings!
Painful. Depressing. Scary. Just some of the words to sum up how people feel about the market in general, inflation, and economic concerns. Not to mention thinking about domestic and international issues, as well as politics.
So, what is the best course of action to take now and going forward? Quite simply (and easier said than done to be sure), is to take a deep breath, and keep things in perspective. Bad markets (including when it is officially labelled a Bear market), happens more times and more frequently than most people realize. Yes, there is now the addition of inflation, which does not occur as frequently, but also has happened before.
Each and every time these events occur, it feels "different" and comes with those feelings of it being painful, depressing, and scary. While it may feel like it will not get better and continue to go lower and or stay low, it will get better. This has happened each and every time, and the markets not only recover, but surpasses where it had been prior.
Knowing that we are in a downturn, and it may last a while, shouldn't people perhaps "cash out" of investments, and wait for the signs of a rebound? The challenge with that is that by the time that signs of a rebound have happened, that is usually after the market starts going up, and then you miss that upside because you are sitting out of the market. Plus, it is not necessarily clear if the market rising is just a temporary upswing, or something sustainable, and by the time the signals show it is sustainable, then you missed that prolonged upswing.
In essence, the above is market timing, and study after study shows market timing is almost always the wrong way to go when it comes to investing, and instead it is time in the market that makes the difference.
It is for that reason that we, and most every reputable financial professional, will generally recommend that investments should have a long term outlook (5 years or more), which also includes for the planning of taking a stream of income when needed for retirement.
This is in conjunction for all of our clients to have a full year's worth of expenses in emergency funds in their bank, to help weather storms such as this. For those that are retired and have sufficient lifetime guaranteed sources of income in excess of their expenses, 6 months of expenses will do. That stated, if having a little more of emergency funds helps people sleep better, that's fine as well.
We give you a deeper insight into our thoughts on the past quarter and outlook further below. If you would like, we also have a link to the Q3 2022 Global Market Outlook by Russell Investments. Click here to access the short executive summary, or click here to access the more in-depth commentary. .
In this issue of our Investment Newsletter:
- Our current investment topic is: I-Bonds: What Are They, And Do They Make Sense?
- Recent articles where Landmark Wealth Management was quoted in the press.
- An overview of recent market activity, along with Our Perspective...
- A recap of the performance of major market indices from the past quarter
- Upcoming Economic Calendar
You will find past investment articles, by clicking the Articles tab above, or directly on our website, found under Periodicals.
If there is a topic of interest you would like to see covered in the future, please reply back to this email to let us know, or click here. Likewise, if you have any questions on this or anything else, feel free to reply back.
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Investment Topic
I-Bonds: What Are They, And Do They Make Sense?
For our investment topic, "I-Bonds: What Are They, And Do They Make Sense?", we give a high-level overview of the topic. To learn more, please click here.
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Recent articles where Landmark Wealth Management was quoted in the press
The past few years, Landmark Wealth Management has been quoted in the press for various articles. We have decided to start sharing these when they happen. If curious about past times we were mentioned, you can see it on our website under Articles > In The Press, or simply click here.
"Five Ways Muni Investors Can Navigate a Rising-Rate Environment"
From an article that was in the Wall Street Journal in March: "Five Ways Muni Investors Can Navigate a Rising-Rate Environment - WSJ". To access this article, please click here.
"As Mortgage Rates Rise, Home Sellers Fear Time is Running Out to Cash In"
From an article that was in the Wall Street Journal in April: "As Mortgage Rates Rise, Home Sellers Fear Time is Running Out to Cash In". To access this article, please click here.
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Our Perspective on Recent Market News and Activity |
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Our synopsis of the past quarter, a look ahead, and putting it all in perspective: |
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We started our newsletter with the words painful, depressing, and scary. That is exactly how bear markets are supposed to feel and at present we are certainly experiencing a bear market. The term “bear market” refers to a prolonged market downturn that consists of a drop of at least 20% in prices from recent highs, generally in the S&P 500 or the Dow Jones Industrial Average. The good news is that bear markets do not last forever, they just seem to last forever. As to be expected, not all bear markets are the same. The other good news is that once stocks are down 20%, the future returns really improve. In fact, there is a historical median gain of nearly 24% a year after a bear market starts. On average it took about 19 months for stocks to recover their losses, however in the last three bear markets (or near bear) in 2011, 2018, and 2020, it took stocks just four to five months to make up the losses. The worse a bear market is, the longer it takes to recover. For example, when a bear market decline was less than 22%, it took just seven months on average to recover, but when a bear market decline was more than 22%, it took an average of 27 months.
Two of the most famous investors of all time, Warren Buffett and the late Jack Bogle (Vanguard) both agreed and echoed the same sentiment. That is, when stocks are down, “Don’t watch the market closely”. The “Oracle of Omaha” added that over time “The money is made in investing by owning good companies for long periods of time”. Jack Bogle of Vanguard said that buying stocks and holding them was the best way to invest because “Your emotions will defeat you totally” if you try to sell your holdings to avoid losses and get back in afterwards. “Stay the course” Bogle said in 2018. “Don’t let these changes in the market, even the big ones (like the financial crisis), change your mind, and never, never, never be in or out of the market. Always be in at a certain level”. Investors who sell when markets are down may actually end up derailing their long-term plans. When markets calm down, they can rally very quickly and unexpectedly. If you miss the recovery, you will make it much harder to achieve your financial goals. Sometimes the best advice is simply to not watch your account balances every day, and perhaps avoid looking at statements if it will cause you undue stress. 2020 was a perfect example of this. When the market bottomed on March 23rd, 2020, at that time nobody knew that would wind up being the market bottom. After all, we were still at least a month away from what was to be the highest level of death, no vaccines were on the horizon, and we were looking at shutting down the global economy. So why would the market then rally 20% in the next 3 days and have the best 50 days in trading history? Because that is how the markets work, they are predictably, unpredictable.
The S&P 500 finished the half with its worst performance since 1970. The Dow is down more than 15%, the S&P 500 is down more than 20% and the Nasdaq is down almost 30%. June has seen the worst month since March of 2020, which as mentioned previously turned out to be the bottom in 2020. Will July see a similar reversal? Only time will tell. The bond market has also continued in a historically bad first half of the year, which saw the Barclays Aggregate bond index fall -10.16%. Traditionally, bonds have a low correlation to stocks and serve as a buffer to volatility. However, due to the aggressive turn by the Fed to swiftly and aggressively raise interest rates, bonds took on a great deal of that downside. Will the Fed get to a neutral rate of 3.5%-4%? Once again, only time will tell, however rates did start to come down at quarter end, which could be signaling that the market does not quite believe that the Fed will be able to raise the Fed funds rate as high as many had thought.
Clearly the markets never make it easy. The big four concerns are the Fed raising interest rates, high inflation, is a recession ahead, and the Russia/Ukraine situation. Not to be forgotten is of course COVID and supply chain disruptions. That is certainly a lot for the market to digest and has been enough to make 2020 a year to be forgotten to this point. So, what will be the catalyst to turn things around? Things to be on the lookout for will be some sustained economic reports which show that inflation is starting to come down in a meaningful way. Perhaps some language from the Fed showing a change in stance from being extremely hawkish on raising rates to signaling that perhaps rates are at a proper level and future rate hikes seem less likely.
Maybe we will get a news headline that Russia and Ukraine have signed a peace deal, and the war is over. Perhaps the coming mid term elections will influence the economy and markets. These are all possibilities, however in fairness we are speaking in terms of what we know today. Could there be another “black swan event” that is not currently on the radar? That is always a possibility and life comes with future surprises at times. A big focus will also be on corporate earnings. Analyst’s expectations of future earnings are still surprisingly high. Will those estimates eventually come down or has the market overestimated the economic damage? Again, time will tell. In the chart below which dates to 1926, the average bull market has seen an increase of 387% and lasted 7.2 years, while the average bear market has seen a decrease of -39%, lasted 1.3 years, and occurred once every 7.7 years. Those are pretty good odds on why it is important to invest in the markets.
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Where does this leave us as we finish the first half of the year and as we head into the second half? Short-term predictions on the markets are often wrong, and unless one has a magic crystal ball, it is always guesswork. As an example, most analysts and economists coming into 2022 predicted that this would be a positive year for the markets, perhaps in the mid-single digit range. As we exited the world of COVID-19, supply chains reopened, inflation would prove to be transitory, and that things were still pretty good. To their credit, most analysts did mention that the year would come with a lot more volatility, however coming off of 2021 which was a low volatility year, that was not much of a stretch to predict. Perhaps they will be correct by the time the year is done. At this point in time and barring any of the previously mentioned catalysts to change the direction of the market, it appears that those 2022 forecasts were just wrong. As a long-term investor, that is the price of admission to grow wealth over time. Fortunately, the stock markets are positive about 75% of all years. The bond markets are positive about 90% of all years. When you add those two asset classes together, you generally wind up with a positive year 80% of all years, depending on your asset allocation. Those are very good odds, and we are coming off three consecutive good years. This may just turn out to be a bad year. That does happen and is not the end of the world. What does matter is an investors willingness and ability to accept the volatility, ride through it and wait for better days in the hopefully not too distant future. That is how wealth is built over the long-term.
If you have not met with us during the last year, we strongly encourage you to set an appointment at a date and time of your convenience, either in person, via Zoom, or even a phone call. We are here to help, to give you peace of mind by utilizing our greater than 100 years of cumulative experience in the investment industry during great, good, average, bad, and terrible markets, to show you how this will or will not affect your ability to have and continue to maintain your financial well-being. We have been rebalancing the account(s) throughout the year, and for those of you with non-qualified (non-IRA) accounts, we have been active in harvesting losses for tax planning purposes.
Looking forward to the second half of the year, keep your seatbelts securely fastened as the ride is not yet over, but we will get to the final destination safely. If history is any indication, when the S&P 500 has fallen at least 15% the first six months of the year which happened in 1932, 1939, 1940, 1962, 1970, it has risen an average of 24% in the second half according to Dow Jones Market Data. Let’s hope for a similar type of 2nd half of the year type of a rebound occurs again. Enjoy the Summer!
Please remember that all investments carry some level of risk, including the potential loss of principal invested. They do not typically grow at an even rate of return and may experience negative growth. As with any type of portfolio structuring, attempting to reduce risk and increase return could, at certain times, unintentionally reduce returns.
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Below is the Q2 '22 price return performance of some of the major indices: |
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On the Investment Horizon |
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Upcoming Key Dates on the Economic Calendar
- First Friday of each month: Unemployment report for the prior month, released at 8:30AM.
- Monday, July 4 - Independence Day: US Markets closed.
- Tuesday, July 26 - Wednesday, July 27: The Federal Open Market Committee (FOMC) meets, and releases their announcement on Wednesday at 2PM.
- Thursday, August 25 at 8:30AM - GDP, 2nd quarter (second estimate).
- Monday, September 5 - Labor Day: US Markets closed.
- Tuesday, September 20 - Wednesday, September 21: The Federal Open Market Committee (FOMC) meets, and releases their announcement on Wednesday at 2PM.
- Thursday, September 29 at 8:30AM - GDP, 2nd quarter (third estimate).
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For our clients - You should have received your statement directly from your account custodian (TD Ameritrade and/or Charles Schwab). If you have not, please let us know so that we may investigate the matter. Please review your statement carefully and let us know if you have any questions or comments.
Also, as a reminder, we have moved to a new office, with a nice sized conference room to use for our meetings and updates. If you do not feel comfortable coming into our office, we recommend that we possibly set up a Zoom or teleconference call to update your planning numbers, especially if it has been more than a year since we have last done so. Please feel free to reach out.
For everyone - If you desire an appointment, have any questions on any of this material, or any other financial subjects may relate to your own financial circumstance, please reach out to us at the contact information below:
Sincerely,
Direct phone: 631-923-2485
This communication is from Landmark Wealth Management, LLC, a Securities and Exchange Commission Registered Investment Advisory firm. The information in this email is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax, legal, or investment advice from an independent professional / financial advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. Information and use of materials contained in this email, including text and attachments, is confidential and is for the use of the intended recipient(s) only. If received in error, you are hereby notified that any dissemination, distribution, or copying of this communication, or any of its contents, is strictly prohibited. If you have received this communication in error, please reply to the sender and delete the original message and any copy of it from your systems. Be also advised that email communications are not secure. All e-mail sent to or from this address will be recorded by the Landmark Wealth Management, LLC email system and is subject to archival, monitoring, and inspection pursuant to securities regulations. Please direct any matters regarding this policy to [email protected].
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Landmark Wealth Management, LLC
95 Broadhollow Road, Suite 102
Melville, NY 11747
(631) 923-2485
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