WealthBuilders Quarterly Client Letter – 2021 Q4
There’s never a lack of noise coming from the moving parts that make up your whole portfolio, especially whichever ones are squeaking the loudest at any given time.
This is no surprise. The world is enormous. To cope with information overload, we engage in what behavioral psychologists refer to as heuristics. These are rules of thumb, or mental shortcuts that take us past what seems inconsequential to our survival. They let us focus instead on the scariest snakes, and lowest-hanging fruit we can find.
In many ways, heuristic thinking has worked wonders for us; it still does. But as investors, we end up overreacting to the most exciting or alarming news, and overlooking the less obvious evidence on how to create financial stamina.
Consider your monthly statements in this context. In terms of fruitful investing, markets in 2021 offered a bumper crop of seemingly easy pickings. Crediting “a highly speculative, risk-complacent market driven by a combination of near-zero interest rates, abundant capital and a healthy dose of hype,” Financial Post columnist Tom Bradley summarized the year as follows:
“We’re at a point in the business cycle when the disc-jockey is playing Shout by the Isley Brothers and investors can’t stop dancing.”
· The Wall Street Journal observed how low rates and busy investors “helped the S&P 500 close at a record 70 times this year, more than one-quarter of all trading days … and pushed the index up 27% in 2021.”
· Morningstar reported that 2021 was also a banner year for companies going public, driven largely by SPACs going public at “more than 5 times the number from the year before.”
· Traditional and thematic ETF launches were popular as well. Morningstar reported:
“As of Nov. 24, a record 406 new exchange-traded funds were launched in 2021. … The top 100 are the Swiss Army knives of the ETF world. … But there were plenty of suspect newcomers in the crowd in 2021. A common thread among many of them is that they prey on investors’ impulses to chase what’s hot.”
· From options trading, to IPOs, to tech stock bets, one aggressively active investment company president declared 2021 as “the year of the risk asset. … Anywhere there was risk and an opportunity for larger returns, we saw that pay off in spades.”
On the flip side, there’s been no lack of attention to the ubiquitous snakes in the grass. Will inflation rage in 2022? What about when the Federal Reserve fulfills its promise to wind down the economic stimulus programs—the ones that have left markets awash in cash—and begins raising interest rates instead? Will higher taxes happen? If so, how will they impact your financial, retirement, and estate transfer plans? What about coronavirus? Climate change? China?
If you’re just looking at the parts, good and bad news alike seem equally difficult to process. You know each piece contributes to your overall plans … but how?
That’s where we come in. We’re here to help you discover the expansive planning space found between the extremes of exuberant and alarming news.
To review, our process ideally begins with your financial plan - tailored to your life’s goals, your timeline, your tastes, and aversions. Your plan guides us in developing your well-structured, globally diversified investment portfolio. We build your “whole” to deliver a measure of the market’s more promising reward potential, while better positioning you against its greatest risks. Then, because nothing ever stays the same for long, we regularly revisit your plan and portfolio, to help you incorporate any relevant news and disregard the squeaky wheels.
If we humans never took any shortcuts between discovering and reacting to breaking news, perhaps we could be less disciplined about it all. Instead, all evidence continues to confirm: Each year, each quarter, each day delivers fresh fodder in which seeds of doubt can sprout. Until the day we know exactly what the future has in store, we are honored to remain by your side, to help you make sense of the years ahead.
What goals or challenges can we help you tackle in 2022?
Content in this material is for general information only and not intended to provide specific advice or recommendations.
The Standard & Poor’s 500 Index is a capitalization weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. All indices are unmanaged and may not be invested into directly.
ETFs trade like stocks, are subject to investment risk, fluctuate in market value, and may trade at prices above or below the ETF's net asset value (NAV). Upon redemption, the value of fund shares may be worth more or less than their original cost. ETFs carry additional risks such as not being diversified, possible trading halts, and index tracking errors.
All investing involves risk including loss of principal. No strategy assures success or protects against loss. Past performance is no guarantee of future results.