February 28, 2022 I have been receiving inquiries from people asking if I am still writing a monthly letter from August Wealth. The answer is yes, but we have been limiting the letter to clients only, and then we delay publishing the letter to LinkedIn.
If you would like to read my comments from January 5 and January 24, this link will direct you to them: https://www.augustwealthadvisors.com/market-commentary
As you can see, we managed risk in our portfolios at the start of 2022 to reflect our view that uncertainty was rising. We are surely glad we did! We foresaw that the market was too complacent considering changes to fiscal, monetary, and evolving psychology pertaining to Covid. Hence, we adjusted our approach.
Little did we know that less than two months later, geopolitical changes would become arguably the biggest risk factor for world markets in 2022.
None of this should suggest to anyone that we have any edge over anyone else in our short-term views on market direction. In fact, if someone is suggesting that they do, I would respectfully challenge it. Volatility and uncertainty are the themes of the day; making predictions in this environment is either treacherous or disingenuous. “Expert” opinions are out there. I would suggest that if you are listening to “experts” to please consider their inherent bias or angle for espousing their views.
I sound like a broken record, but it’s worth repeating: If you are invested in this market, these are the questions to ask:
How will you feel if you lose 10% or 20% of the value of your portfolio? It was just as important to ask this question on January 1, 2022, as it is today on February 27, 2022.
How uncertain is the range of returns over the next year based on available information? The answer to this question was what led August Wealth to reduce risk at the beginning of the year; nothing more.
Are you truly invested for a 10+ year period? It’s easy to say yes, it’s harder to accept near term negative fluctuations in your portfolio.
To manage your purchasing power and preserve your wealth, it’s important to have a plan. For many, that plan may include an advisor that demonstrates the following attributes:
As a Fiduciary, operates in your best interest.
Serves you and your family.
Objective in investing and assessing risk.
Dedicated to solving problems to help achieve goals.
Why is this important?
The world is a “scary” place. The more you live in fear, the less fulfilled your life is likely to be.
Letting go of the emotions that cause you anxiety can be achieved if you have confidence in your plan.
Letting go of the negative energy will allow you to focus on the love of family and friends.
Relationships with all that is amazing and wonderful about life will likely bring you peace.
But what about the market? Careful with this cat. The risks we outlined at the beginning of January still exist, but now we have the additional risk of geopolitical instability. It obviously must be considered.
Prices are lower to reflect that increased risk, but are they low enough? Honestly, I do not know. We believe we are invested for the long term, and I have positioned our portfolios to reflect our perceptions of near-term risks and perceptions for long-term rewards. We remain invested, but we remain somewhat cautious.
I have significant concerns about the situation in Ukraine creating even more uncertainty in the future. There are plenty of people giving their views on this topic, so I’m not sure I can add much. However, wise words of my deceased father have been resonating in my head: “A cat may be small and seemingly harmless to you, but if you back him into a corner, you’re likely to lose an eye.” Putin seems like that cat to me. Unless he comes away with some sort of victory in this situation (rightly or wrongly), I remain concerned this situation could become more dangerous. He appears to me to be more alone and isolated. Perhaps he has overstepped with his move into Ukraine? It is quite possible that he has made a grave mistake. However, if world opinion and the west continue to push him because they sense his error, and they perceive him as a weakened, isolated despot that must be punished, the risks for the world rise (in my eyes). This cat may lash out.
Alternatively, we may end up with a negotiated settlement between Russia and the Ukraine, where the west takes account of Russian security concerns, and Ukraine becomes a neutral territory never to be part of NATO. This could be a positive outcome on many levels. Perhaps it keeps the balances of power between west and east more in check, and the world moves forward with a more cautious optimism and healthy distrust of one another? More defense spending perhaps, but potentially more peace.
The Bottom Line: We are using our experience to invest in those areas we believe will help achieve your long-term goals subject to all the short-term risks which exist. We invest for the long-term, allow time to pass, economies to grow, and hopefully pursue desirable returns.
Holding larger amounts of cash than warranted (based on your spending/investing mix) out of fear of short-term loss has not provided a long- term strategy to protect wealth throughout history, and we suspect it’s unlikely to be a good strategy going forward. If you are wanting to hold lots of cash and “sit out” the market until things become clearer, that is your view. I suppose your view is that prices of assets will go down? What is the plan if they do/don’t? Will you buy/sell at a certain point? When and on what information? Do you have additional information than the market?
August Wealth will work to help your family achieve your goals, but there are no guarantees. Our clients should be comfortable with short term volatility in order to preserve your wealth while seeking to achieve long term goals.
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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