2022 was a difficult year for many. We saw war in Europe, spiking energy prices, high inflation, a volatile stock market, a tense mid-term election, and interest rate hikes to name a few. The favorable economic circumstances we had in the 2010s (low-interest rates, low inflation, and modest economic growth) shifted last year. The economy expanded, but increasing interest rates and inflation dampened growth.
In the stock market, we weathered volatility and downturns throughout the year. Technology investments seemed to be hit the hardest, but virtually all sectors were negatively impacted. Because of this, we made adjustments to portfolios. Specifically, we increased investments in value stocks that pay out dividends and focused more on consumer staples, which are companies that sell goods that people need to buy no matter what (think toilet paper and eggs).
The Federal Reserve’s response to stubbornly high inflation prompted the fastest series of rate hikes since 1980, according to data from the St. Louis Federal Reserve. Because of the rising interest rates, the bond market was one of the worst in history. This was something we prepared for in our client portfolios by holding short-term bonds. As the year progressed and interest rates became more favorable for investors, we shifted investments into CDs or higher-returning money market funds. While high-interest rates are not optimal for getting a mortgage, they can be a great opportunity for investors to get returns with less risk.
Going into 2023, we will continue to monitor the economy, interest rates, inflation, recession fears, investments, tax law changes, the job market, and more. Armed with this knowledge we will adjust your investments as changes unfold. We are monitoring all of this so that you don’t have to!
Ultimately, we advise that you must control what you can control. We can’t control the stock market or the economy. Events overseas are out of our control. But we can control the financial plan. It’s not set in concrete, and we encourage adjustments as life unfolds. While we caution against making changes simply based on market action, has your tolerance for risk changed considering this year’s volatility? If so, let’s talk.
If you have any questions or would like to discuss any matters, please feel free to give us a call.