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Ebb and Flows
By Wayne Wagner Jr.
The second quarter of 2022, indeed the first half of 2022, proved to be a challenging one for both the stock and bond markets. As the Federal Reserve raised short-term interest rates in an effort to slow rising prices, long-term rates rose as well.
In the first half of this year, the traditional 60% stock/40% bond indexed portfolio used by so many retirees actually dropped by over 16%, with stocks falling over 20% and bonds more than 10%. Indeed, there were few places of “safety,” and even if you kept the money under a mattress, you still lost purchasing power due to inflation. So yes, it has been a tough couple of quarters.
The good news is that our clients have fared better than most and are positioned to weather what comes next because of the following actions and positions:
Backing Off Stock Exposure
Late last year, we backed off of stock exposure and increased holdings in cash. We were a bit early in doing so, but that is leaving clients better positioned today.
Leverage Fixed Index Annuities
We have used fixed index annuities, one-year T-bills and floating-rate bonds for the lower risk portions of portfolios, which together have helped us significantly outperform the bond indexes while interest rates have been rising.
Buy and Hold Equity Strategy
Our core equity strategy of buying and holding companies with rising dividends has been very resilient against the larger market moves.
A Formula for Protected Cashflow
If you are retired, we have a plan to provide a number of years of income at any given time from within the lower-risk portions of your portfolio along with the income streams built into the remainder of the portfolio. (Watch the video below for a reminder of how this formula works)
This is key because the strategy allows you to “ride out” inevitable storms (like the one we are facing today) and lets us lean into them by rebalancing and buying distressed price assets when opportunities are available.
We anticipate inflation to persist, anxiety to increase, and there to be some frustration within the market and the broader economy in the coming months.
At the same time, we are moving into election season, which means both parties will again attempt to create any level of chaos so they can a) blame the other party and b) present themselves as the next coming of the Messiah that will solve all problems if we all just simply vote for them.
Their promises have rung hollow before and this time around will be no different. Rest assured, we do not let politicians’ need for votes drive investment decisions.
Right now, we are positioned for the environment we are in, and when that environment changes, so will our positioning. If we realize a deeper pullback in stocks, we will buy more equities. And if we find ourselves in a credit or debt crisis, we will move more conservatively until it begins to pass.
In the end, we do not lose sleep over the stock market and neither should you. Equities move up and down in short periods of time due to emotional and economic factors which cannot be predicted. For this reason, we do not invest in stocks with money you may need soon. Rather, because equities in the general increase in value over time, we invest in them for the long run.
Steady and Measured
What Vizionary provides, among so many other things, is a steady and measured hand. When the stock market becomes euphoric, we ease off exposure, and when it seems to be taking a dive, we lean into stock exposure.
What we stay away from is making huge and reflexive decisions—like moving 50% to cash overnight.
Bottom line: the first half of this year has been a challenge, with stocks and bonds falling together, meaning now is the time for patience and resilience. Of course, if you have questions about these or other topics, please do not hesitate to reach out.
Wayne Wagner Jr, ChFC