January 24, 2022
I think it is important to communicate to you during volatile markets in case you are feeling anxious about the declines in the US stock market indices since the start of 2022.
Declining markets often cause anxiety, and I am not immune to this feeling. Nobody (including me) likes to see their portfolio value decline.
However, we stick with our investment plan for the long term, and despite inflation and Federal Reserve policy uncertainty, I remain constructive on equity markets as a whole.
Some observations:
The market seems to be reflecting more of the uncertainty of outcomes we described at the beginning of the month. So, we are not surprised by these market declines.
We reduced risk in our portfolios at the beginning of the month because we felt this uncertainty wasn’t fully appreciated.
The fact that the market is now reflecting more uncertainty (higher volatility and lower prices), makes us more positive on the countries, sectors, and companies we believe will produce long term growth. The prices of many assets have changed considerably since the beginning of the year.
Although uncertainty remains, we will be looking to marginally increase our preferred allocations and reduce short term treasury holdings.
Prices have become more attractive for many of the long term plays we believe will create investment growth in the long term.
One further thought:
This is not a “buy the dip” mantra or a reliance on what you may have heard called the “Fed put”. I have little expectation that the Fed will look to rescue the market. The Fed, in our opinion, will remove monetary accommodation, despite market volatility.
I suspect that the Fed is slightly more comfortable that prices of many highly speculative assets and companies (gambling) have shown that prices go down as well as up.
However, even if the Fed hikes rates by 100bp in 2022, monetary policy will remain very loose. Real interest rates will likely remain negative.
Holding cash for long periods (in our view) will likely continue to erode your purchasing power.
Please email me if you have any questions.
If you are particularly anxious, I would really like to know about it so I can better appreciate your point of view.
Thanks for your trust as always.
Joe
Joseph Cardello, Principal
August Wealth Advisors, LLC
51 Riverside Avenue, First Floor
Westport, CT 06880
Direct (916) 461-9451 toll free (800) 985-9477
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