At Mint Hill Wealth Management, our twofold goal is to 1) simplify the complexity of your financial life and 2) create wealth for you. A large part of these goals means keeping you informed as a client.
With some data from our friends at First Trust, we wanted to put the current market in historical perspective and also share some steps we are taking to protect your wealth right now.
Markets in Perspective
The stock market has been more volatile this year. The SPY Index, which is an indicator of broad market performance, is down 13.80% as of June 6th. (1) This is the worst start to a year since 1939! (2)
Bonds, which investors typically turn to for safety, haven’t performed any better than their equity counterparts. The AGG Index is down 9.81% as of June 6th (3) and U.S. Treasuries have had their worst start to the year since 1973, which is when recordkeeping first began. (4)
Short-Term Fluctuations Are Normal
These figures can be startling, but it’s important to keep in mind that intra-year declines are not unprecedented, and they aren’t even rare. Just take a look at the graph below which illustrates the frequency and severity of intra-year declines over the last 42 years:
Image Source & Disclosure: Bloomberg, First Trust Advisors L.P. *As of 4/29/2022.
Past performance is no guarantee of future results. The benchmark used for the above chart is the S&P 500 Index. The S&P 500 Index is an unmanaged index of 500 companies used to measure large-cap U.S. stock market performance. Investors cannot invest directly in an index. Index returns do not reflect any fees, expenses, or sales charges. Returns are based on price only and do not include dividends. This chart is for illustrative purposes only and not indicative of any actual investment. These returns were the result of certain market factors and events which may not be repeated in the future. The information presented is not intended to constitute an investment recommendation for, or advice to, any specific person. By providing this information, First Trust is not undertaking to give advice in any fiduciary capacity within the meaning of ERISA, the Internal Revenue Code or any other regulatory framework. Financial professionals are responsible for evaluating investment risks independently and for exercising independent judgment in determining whether investments are appropriate for their clients.
Historically, market downturns have generally been followed by market rebounds. If you have worked with us to develop an investment strategy, your plan should anticipate some market fluctuation and be tailored to your specific time horizon and risk tolerance.
Keep Investing to Outpace Inflation
Despite the volatility, continuing to invest is necessary if you want to keep pace or even outpace inflation. It can be tempting to shy away from the risk of investing, especially during such tumultuous times, but the reality is that all investments carry some degree of risk.
The chart below shows the hypothetical growth of $1 and the effect inflation has historically had on stocks and bonds over time. It illustrates how taking a certain amount of risk is necessary in order to stay ahead of inflation, and it should always be considered when assessing long-term financial goals.
It’s important to note that even if you enter the market at a “bad” time, with an appropriately allocated, well-diversified portfolio, it is likely you will still do better over the long run if you stay invested versus keeping your money in cash (and subject to inflation). The uncertainties of the world shouldn’t force you to miss out on potential growth.
Image Source & Disclosure: Ibbotson Associates, U.S. Bureau of Labor Statistics.
Hypothetical growth of a $1 investment made on 12/31/1925. Data shows total returns through 12/31/2021. Past performance is no guarantee of future results. This chart is for illustrative purposes only and not indicative of any actual investment. These returns were the result of certain market factors and events which may not be repeated in the future. The asset classes shown here offer different characteristics in terms of income, tax treatment, capital appreciation and risk. U.S. government securities are subject to interest rate risk but generally do not involve the credit risks associated with investments in other types of debt securities. As a result, the yields available from U.S. government securities are generally lower than the yields available from other debt securities. Common stocks are subject to risks, such as an economic recession and the possible deterioration of either the financial condition of the issuers of the equity securities or the general condition of the stock market. Inflation is represented by the Consumer Price Index (CPI-U) which measures the average change in prices over time that consumers pay for a basket of goods and services. The S&P 500 Index is an unmanaged index of 500 companies used to measure large-cap U.S. stock market performance. Investors cannot invest directly in an index. Index returns do not reflect any fees, expenses, or sales charges. Long-Term Treasury Bonds are U.S. government bonds that have maturities longer than 10 years. The information presented is not intended to constitute an investment recommendation for, or advice to, any specific person. By providing this information, First Trust is not undertaking to give advice in any fiduciary capacity within the meaning of ERISA, the Internal Revenue Code or any other regulatory framework. Financial professionals are responsible for evaluating investment risks independently and for exercising independent judgment in determining whether investments are appropriate for their clients.
The Long Term Is What Matters
Investing in the stock market can be volatile, but the long term is what matters. For this reason, we believe it’s important to keep the proper perspective when stocks rise and fall over short periods of time. History has shown that the odds of achieving a positive return are dramatically increased the longer you stay invested.
Image Source & Disclosure: Bloomberg. Data from 12/31/1936 – 4/29/2022. Past performance is no guarantee of future results. This chart is for illustrative purposes only and not indicative of any actual investment. The illustration excludes the effects of taxes and brokerage commissions or other expenses incurred when investing. These returns were the result of certain market factors and events which may not be repeated in the future. This chart is based on the total returns of the S&P 500 Index. The S&P 500 Index is an unmanaged index of 500 companies used to measure large-cap U.S. stock market performance. The index cannot be purchased directly by investors. The information presented is not intended to constitute an investment recommendation for, or advice to, any specific person. By providing this information, First Trust is not undertaking to give advice in any fiduciary capacity within the meaning of ERISA, the Internal Revenue Code or any other regulatory framework. Financial professionals are responsible for evaluating investment risks independently and for exercising independent judgment in determining whether investments are appropriate for their clients.
What We’re Doing
Beyond educational content like this, there are concrete steps we are taking to ensure your wealth is protected in volatile times.
Greater Exposure to Commodities
Commodities like natural gas, precious metals, and lumber act as a hedge against inflation because they have a low correlation with more traditional asset classes of the market. We include commodities both as a way to diversify our clients’ portfolios and as a way to ensure their purchasing power remains intact over time.
Image Source & Disclosure: Bloomberg 10/31/2005 – 3/31/2021.
Past performance is no guarantee of future results. This chart is for illustrative purposes only and not indicative of any actual investment. Commodities are represented by the Bloomberg Commodity Index. Bonds are represented by the Bloomberg U.S. Aggregate Bond Index. Stocks are represented by the S&P 500 Index. Tips are represented by the Bloomberg US Inflation Notes Index. Gold is represented by the ICE LBMA Gold Price Index. Inflation is represented by the Consumer Price Index (CPI-U) which measures the average change in prices over time that consumers pay for a basket of goods and services. The information presented is not intended to constitute an investment recommendation for, or advice to, any specific person. By providing this information, First Trust is not undertaking to give advice in any fiduciary capacity within the meaning of ERISA, the Internal Revenue Code or any other regulatory framework. Financial professionals are responsible for evaluating investment risks independently and for exercising independent judgment in determining whether investments are appropriate for their clients.
Continued Belief in Alternative Investments
In addition to commodities, we continue to offer our clients access to the latest alternative investments as a way to hedge inflation and grow wealth. Like commodities, alternative investments have low correlation with stocks and bonds, which means they can act as a buffer against market volatility. They can also offer higher potential returns and greater portfolio efficiency than more traditional investments.
The graph below illustrates the historical trailing returns of private equity investments over time. As you can see, the higher returns offer a huge opportunity to both protect your wealth from inflation and grow it over time.
Image Source & Disclosure:1Source for private companies: Ernst & Young, Economic contribution of the US private equity sector in 2020. May 2021. Source for public companies: McKinsey & Company, Reports of corporates’ demise have been greatly exaggerated. October 21, 2021.Source for historical returns is eVestment Analytics. The US Private Equity Universe is represented by the Refinitiv Private Equity Buyout Index which is made up of independent portfolios intended to track the return of the private equity universe by replicating movements in the Refinitiv Private Equity Buyout Research Index which tracks the performance of private equity-owned firms across a number of economic sectors. The S&P 500 Index is an unmanaged index of 500 companies used to measure large-cap U.S. stock market performance. The Russell 2000 Index is a small-cap stock market index that makes up the smallest 2,000 stocks in the Russell 3000 Index. Indices do not charge management fees or brokerage expenses, and no such fees or expenses were deducted from the performance shown. Investors cannot invest directly in an index. Past performance is not a guarantee of future results. For illustrative purposes only and not indicative of any actual investment. The information presented is not intended to constitute an investment recommendation for, or advice to, any specific person. By providing this information, First Trust is not undertaking to give advice in any fiduciary capacity within the meaning of ERISA, the Internal Revenue Code or any other regulatory framework. Financial professionals are responsible for evaluating investment risks independently and for exercising independent judgment in determining whether investments are appropriate for their clients.
Are You Concerned About Market Volatility?
If you’re concerned about market volatility, you are not alone. Many of our clients experience stress or anxiety when the market takes a turn, but we are here to answer any and all questions you may have.
We are continuously working to make sure our clients have access to the latest market information and understand how it affects their portfolios. If you would like to learn more about our investment process, or you have questions about your portfolio, please reach out to us! You can schedule a complimentary introductory appointment by calling (402) 509-5787 or emailing us at info@minthillwealth.com.
About Tyler
Tyler Anderson is president and co-founder at Mint Hill Wealth Management, an independent, boutique wealth management firm serving physicians and their families. Tyler’s goal is to simplify the complexity of his clients’ financial lives, focusing on wealth creation, so they can focus on caring for patients, growing their practices, and spending time with their families. Tyler is known for building lifelong relationships built on trust and understanding and is committed to helping individuals and families pursue wealth and purpose with their lives and finances.
Tyler has over 10 years of experience in the industry and graduated from Wheaton College with a bachelor’s degree in business and economics. He is also a CERTIFIED FINANCIAL PLANNER™ practitioner. When he’s not working, Tyler loves spending time with his wife and three young children and staying involved in his church community. You can often find him playing basketball, enjoying the outdoors, and cheering for Arsenal F.C. and the Ohio State Buckeyes football team. You can learn more about Tyler by connecting with him on LinkedIn.
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