2022: A Lightening Round
We all acknowledge that 2022 had been an incredibly challenging year for nearly every aspect of our financial affairs. Stock markets, Bond markets, and real estate markets suffered some incredibly deep setbacks. Significant setbacks. These were spurred on by many complex forces including spiraling inflation, high interest rates, the war in Ukraine, and international covid policies which heightened supply chain problems.
Thankfully, the last few years of excessively strong returns acted as a “down-payment” for a future when markets would be tough. We are also reminded that life tends to rebalance things which have become lopsided. It’s a fact of life that repeats, and we do not have control over when and how these things adjust.
Let's take a look back and contextualize the situation in 2022 to remind us that the current situation is not all bad, and expectations for the future are much different than we see in the media. The following are a smattering of “lightning round” topics we think you’ll enjoy.
(1) Patterns We Want vs. Patterns We Live
Most of us don’t like it when things change too much. To an extent, it’s unsettling, but it’s the normal course of life if we’re being honest. When thinking about the rates of return on our investments over time, consider the type of performance we want, versus the type of performance we fear, and then ask yourself what is closer to reality. Then, make a note to ask us during your next review meeting to explore how your answers to those question relates to your risk profile and expectations.
(2) Markets are Predictive Creatures:
It’s important to note that investment markets tend to behave in an “anticipatory” way. Last year, long before recessionary pressures took hold and while company profits were still very high, the stock and bond markets began their downward trend (in anticipation of tough times ahead). This is a normal market reaction (yet extremely difficult to predict when it actually begins). In the same light, markets tend to forecast the end of recessions far in advance of good times happening and so they may recover and grow even though headlines and conditions are still very negative. This pattern seems to play out time and again, and there’s no reason to suspect it will change anytime soon.
(3) Nothing is Broken (at least not much differently than it usually is):
We are tempted to think that there are many things incredibly wrong when markets correct downward. However, it’s important for us to remember that even though there are very real recessionary pressures, these are necessary responses to market excess. Nothing is inherently broken; this is actually how things work… even though we don’t like it. Markets have “corrections” for many reasons, but it could be summed up quite nicely that bear markets happen because things have become unbalanced (or disconnected from reality). When prices extend too far to the extreme (either up or down), then rational prices find their way back. It’s the basic functioning of our entire system. Free Enterprise (an open market of buying and selling) means that there are times when things get “out of whack”. This is one of those times.
(4) Did You Lose a Bunch of Money in Your House…or…?
It’s an interesting thing to note that many folks tend to look upon their home price differently than their investment price. For example, if one’s “managed” investment portfolio rose in value like crazy and then gave back some of that growth, we tend to look at that as we “lost money” even if we haven’t sold our investments. In the same light, housing prices have skyrocketed over the course of the past number of years and now that they are significantly down do we look at that as a loss too? Even though our homes rose in value to unsustainable levels, it’s wise that we consider the price we paid for our homes and the growth we’ve seen in our homes over a long period of time. It’s also wise to realize we cannot keep “locking-in” excessive growth in our homes or in our portfolio values (i.e. the market timing we know is not sustainable over time for a myriad of reasons too obvious for serious discussion). Prices come down from extremes and they go up from extremes. Rinse and repeat. This cycle won’t be changing anytime soon!
(5) Recent Property Assessment Values Don’t Reflect Today’s Market:
People opening their property assessments this year are typically shocked to see the large increase in assessment values for tax purposes. The unfortunate part about this is that the new assessments may have been done very close to the peak of the real estate market (when properties were being bid much higher than asking prices). Fast forward to today, and the market has dipped incredibly, thereby meaning we’re paying property taxes on “artificially high” valuations which may not be realistic in today’s marketplace. Perhaps this is a reason one might consider asking for a reassessment?
(6) Psychology of Investing:
It’s common knowledge that we humans tend to make investment decisions based upon emotion, and this is often troublesome! The problem is that emotions are fleeting and may not be grounded in rationale wisdom. Unfortunately, when our emotions are heightened, they tend to lead us down the exact wrong path, more often than not. Fear seems to cause people to desire to sell their investments at specifically the wrong time (when prices are low and buying would normally be the better decision!) On the other hand, when markets are frothy and expensive, some people may tend to want to buy a lot more of what already made them money (which may be the time to resist buying more!). Historically, we’ve discovered that one of our most important roles is to protect clients from themselves. This idea is related to the notion that doctors don’t usually do surgeries on their own family members. They are too emotionally invested to perform their job well. It’s no different for you.
(7) Jumping Off the Balcony:
There was a significant stock market correction back in 1987 and there were stories of stockbrokers jumping off their balconies to their unfortunate demise. Who knows what “big calls” those poor fellows did back in the day which caused them to feel such desperation! ☹ One of my long-time mentors said that when markets corrected, he would invite clients over to his office so that they could, together, hold hands and jump off his balcony. The joke was that my pal’s office was a ground floor unit and his “balcony” was really only a porch. The moral of the story here: Don’t overreact.
(8) Do You Ever Question the “Product” the News Media is Selling?
Anyone who’s got more than a few decades under their belt knows that the “news” media is not really delivering just the news these days, but there’s much more hype and editorial content than ever before. Many cable news outlets survive, in part, by massive advertising revenues and agenda-driven idealogues which whip-up their viewers. It’s good to ask a few questions about this: Do those advertisers have any sway on what the news media might report about them? Do the idealogues control the narrative which may differ from reality? Do news media outlets have any serious conflicts of interest? Regardless of how these questions may be answered, the “news” media are very powerful business enterprises which exist to make money. Full stop. They are “for profit” enterprises and we would be wise to question and investigate the “products” they are selling. There’s a famous old saying about such things: “Trust but verify”. I’m not sure there’s ever been a time where this saying has been more important.
(9) Resist the Temptation to Hide, Communicate!:
Share this newsletter with your spouse, family, and friends. People close to you are likely feeling the same uneasy feelings that you may be feeling as it relates to this recession. Often only one spouse receives and reads this letter, so we encourage you to share it. This accomplishes two things in your family: (1) it cements your own personal knowledge of these important topics as you discuss them, and (2) it helps make your loved ones feel more secure. It’s valuable all around. Communication helps.
(10) Control What You Can, Leave the Rest:
During recessionary times we often feel powerless because we don’t have control over things which significantly impact our lives. Mortgage rates are up, cost of living is crazy, and everything we own seems to change in value on a daily basis. None of us can control such things, but if we allow these to control us they can steal our peace. While times are challenging, prudent folks find ways to adapt their lives to the conditions. Just as we saw during covid lockdowns (something brutally unforeseen in our lives prior to 2020), we adapted to that nightmare by cooking at home and eating as a family more often (restaurants were closed) and generally this was good for building relationships which may have been languishing. In today’s tough investment markets, we do have the power (and the responsibility) to adjust our personal spending habits on “wants” in particular. Adjusting purchase decisions to reflect market conditions is necessary for long-term financial success and part of a life well lived. Our forefathers lived this way and we would be wise to keep the best practices which gave them resiliency and success over time.
Thanks again for your trust and confidence as we navigate these years together, one step at a time.
Yours truly,
Maurice Matte
PRESIDENT, LIFE INSURANCE AGENT - M.J. MATTE & ASSOCIATES INC.
ACCOUNT REPRESENTATIVE - Manulife Wealth Inc.