May 2022 Market Update

Is It Time For the Bull To Start Struggling Against the Bear?

Have you ever worried about something? I mean really worried about it as it kept you up at night. I know I have. I often do, even though I know logically that worrying about a thing does not change things. This is the human condition. We worry, and sometimes that worry pushes us to act even when doing so is not in our best interests.

When I graduated college, the United States was in a recession. A new grad with a business degree could not find a job. I worried I would never be able to provide for my new wife, who had a sign-on bonus and a job before she graduated as a registered nurse. I scrambled, found odd jobs and part-time jobs, and even took what I knew would be a lousy job. Taking that job wasted valuable time and resources, but I felt I had to 

Have you ever acted just because you felt you “had to do something?

This month we will cover some diverse topics:

• Why most investors underperform

• Are there any reasons to be optimistic?

• Top three reasons people run low on money during retirement?

Why most investors underperform:

Last month I mentioned the “R” word (“…. A recession over the next several quarters is certainly a possibility.”) Since then, Q1 of 2022 showed us one-quarter of shrinking GDP, and yet actual final sales to domestic purchases climbed 2.6% suggesting that possibly the core economy is still healthy.

The National Bureau of Economic Research (NBER) officially determines when we have a recession. They typically do not tell us until after it has already occurred. At this point, we, as participants in the economic cycle, are already well aware that something painful has happened. Negative Gross Domestic Product (GDP) for two consecutive quarters or more is often cited as being in a recession. However, other factors are considered. During 1974, the Bureau of Labor Statistics (BLS) went into even more detail, assigning several different measurements to determine if a recession had occurred. None of which have yet happened.

We could talk about the numbers all day. I love numbers just as much as the next financial guy but during the past three decades, I have learned that understanding and respecting the emotional aspect of the markets is essential to investors and those looking to retire and live their best life.

The Federal Reserve Open Market Committee (FOMC) has telegraphed several more half-point interest rate increases. This has caused fear of a massive slowdown in consumer activity, increased borrowing costs, and the revaluation of a host of assets tied to that rate. The idea is that all of these things will lead to significant unemployment and the feared recession. Given that The fear is likely justified given the FOMC’s track record over several rate hike periods as we so often find in life, the fear of the thing is often worse than the thing itself. This powerful emotion has already caused a significant and indiscriminate pullback of nearly all assets, including bonds.

Historically, the reversal of a major downside correction is essentially impossible to time. The typical investor’s mistake and why most investors underperform is threefold, none of them having to do with numbers.

1. Their fear gets the better of them, and they sell assets locking in their losses

2. They believe deeply that they can time the market

3. Due to poor planning, portfolio management, or unforeseen circumstances, they are forced to sell.

Are there any reasons to be optimistic?

April showers may bring May flowers! Earnings were encouraging, with some exceptions. At the same time, There were also some warnings about future growth from companies struggling with increasing material and labor costs. The popular press loves to feed on our negative emotions because it sells more advertising. Still, we like to take a more balanced view. We believe that, quite possibly, a perfectly bad outcome has been priced in.

Much like there are no perfectly good outcomes, there are rarely any perfectly bad ones either. We believe this leaves an attractively priced market for adding additional investment.

We stress that while the valuations of the larger indices are looking more attractive, you may be better served to focus on businesses that are operating in what we call the innovation zone. These companies have often suffered massive losses compared with their peers despite being involved in areas that are likely to receive the lion’s share of business and profit going forward. Despite what is commonly believed, many of these companies are older, established dividend-paying businesses in what may be considered “ that have managed to remain relevant and ahead of the proverbial curve.

Top three reasons people run low on money during retirement?

Guardian Rock Wealth™ has a white paper that goes into more detail on the Eight Comm Misunderstandings About Retirement (And how to understand them better). This is just a summary of what I have found to be the top three reasons people run low on money during retirement, aside from poor planning prior to retirement.

1. Misunderstanding the impact of inflation. Have you ever looked at something you have not purchased in some time and been shocked at how much it now costs?

2. Misunderstanding risk; The necessity of taking some risks but managing it to your specific needs.

3. Misunderstanding your time horizon, spending down assets too soon, or not spending enough to enjoy your best life now.

All of these issues and more are explored in more detail in our white paper that you can request by clicking here.

“Define your outcome and allow a skillful artisan to help create it for you.”

Nothing in this communication should be construed as personal advice, and past performance is no guarantee of future results. Investing is not appropriate for everyone. There is a risk of loss associated with investing in the markets. No representation or implication is being made that using any methodology or system will generate profits or ensure freedom from losses. Guardian Rock™ LLC and its affiliates are fiduciary investment advisors. Please consult with Guardian Rock™ or another experienced investment advisor or us before making investment decisions and trying to implement the strategies and tactics we discuss in any of our publications.

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