Quarterly Client Letter – 2022 Q3

Well, it’s official. The third quarter ended in bear market territory across multiple markets. To place that news in a meaningful context, we pose two questions:

1.     In better times, had you boldly “pre-decided” what you would and would not do during the next bear market?

“Great investment experiences treat most portfolio decisions as non-decisions. They’ve been pre-decided, and are immune to market prices, sentiment, and human judgment. They remove agency, and thus reduce regret.”

— Rubin Miller, Fortunes & Frictions

If you’ve been a WealthBuilders client for a while, you can probably recall our similar advice, as well as important actions we’ve already helped you take, so you wouldn’t have to decide much when the next bear market came along. Still …

2.     Even if you had disciplined bear market plans in place, have you been wondering whether you should un-decide anything anyway?

Admittedly, it’s a tall order to whistle past the graveyard of recent market returns, without being haunted by at least a dash of indecision. Given how unsettling many third quarter and year-to-date events and performances have been, you may struggle to un-notice the usual swarm of hand-wringing predictions and “this time it’s different” warnings about what may lie ahead.

Perhaps the scariest part isn’t necessarily the numbers themselves, as much as the lingering uncertainty of it all. When will the pain end—or will it?

Unfortunately, we can’t answer that, or guarantee the doomsday predictors aren’t right. But we can be inspired to reframe the uncertainty and understand what to make of it based on recent reflections from Dimensional Fund Advisors’ David Booth:

“You can feel empowered by uncertainty instead of beaten down by it. Without uncertainty, there would be no opportunity. … If you think about it, the life equivalent of compound interest is wisdom. Learning from the past helps you make better decisions in the future, and those lessons build on one another over time.”

In that context, let’s look back to the last time we encountered some of the inflationary and potentially recessionary economic conditions we’re currently enduring. We now have the compound wisdom to know just how wrong an infamous 1979 BusinessWeek cover story turned out to be when it declared “The Death of Equities.” Eventually, BusinessWeek rolled into Bloomberg’s publications. Forty years later, in 2019, a Bloomberg columnist described how they were “still getting grief” about it:

“Three years after [“The Death of Equities”] appeared, the stock market hit bottom and then began a remarkable resurgence. The total return on the Standard & Poor’s 500-stock index since its 1982 low, with dividends reinvested, has been nearly 7,000%. Not bad for a corpse.”

It would’ve been a bad idea to give up on capital markets in 1979. It remains a bad idea to give up on them today, especially given the compound wisdom we’ve acquired since then. We believe well-diversified asset allocation remains our best strategy in bull and bear markets alike.

We encourage you to recall everything we’ve already done to manage your globally diversified mix of stock, bond, and appropriate alternative investments. We’ve based your portfolio on the assumption that markets are durable over the years, and frequently uncertain in real time. (And yes, as we’re seeing, that can apply to bond markets too.) We can also discuss myriad bear market actions worth considering at this time, such as:

  • Sticking with your well-planned portfolio mix (reallocating when appropriate for your personal financial goals).

  • Periodically rebalancing to stay on target.

  • Tax-loss harvesting in your taxable accounts.

  • Adding even more investable assets to your portfolio while prices are low (especially if you’ve got a long time to invest).

  • Taking a close look at your discretionary spending (especially if you’re in early retirement).

How else can we assist you and yours at this time? Please let us know if we can answer any questions about current market conditions, or anything else that may be on your mind.

 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.

 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.Asset allocation does not ensure a profit or protect against a loss.

Dan Olsen