Looking back at 2021, so much happened: market rallies and declines, fluctuating interest rates, Delta then Omicron, inflation, political polarization, etc. Surprisingly, 2021 was a good year overall despite volatility, most markets trended up, and the U.S. was in the lead.
COVID is lingering, but unemployment is still lower than expected, corporate profits are rising, and real estate owners are elated over the value of their bricks and mortar. What goes up must come down? Maybe not just yet though! The formation of households continues to rise, millennials are moving to the suburbs, and the housing market remains strong.
Current worries include the fact that the Fed has signaled rate rises in 2022, but they may not be as severe as expected, and may not be as damaging to the economy as previously feared. The years from 2013 to 2019 show that the economy and the markets can do quite well with rates between 2% and 3%. However, some clients may want to review fixed-income holdings and be sure that their portfolio includes asset classes that fare better in a rising rate environment.
Also on the list for hand-wringing, add that a5%+ inflation reading came back in 2021, due to supply chain problems and shutdown issues, as well as rising labor costs and housing price tags. A closer look reveals that companies have still been able to raise their prices and not damage their profits due to rising costs across the board.
So what are the lessons to be learned?
- That with so many variables in the financial environment, proactive and comprehensive wealth management is more valuable than ever. Those who had proactive relationships with their financial advisor were able to take advantage of the market volatility and execute some loss harvesting as the year went along. Without ever harvesting losses that were produced in 2021, many buy-and-hold fund investors paid quite a tax bill due to the lack of proactive planning.
- Don’t Panic about interest rates. Rates have moved up sharply in recent days and stocks have pulled back, but that is a far cry from derailment of the economic train and the markets as well. Growth stocks are showing the strain, the housing sector might slow down as mortgage rates increase, but again this trend is an adjustment. The economy and markets can and do adjust to changes in interest rates. The current trend is moving faster than what we are accustomed to, but the rate increases are a necessary adjustment as we return to normal. They have certainly generated turbulence in markets in recent days, and we might well get more turbulence before this scenario is over.
- Keep calm and carry on. The stock market’s gain during President Biden’s first 100 days in office was one of the best ever. The current rate cycle is a needed—and overdue—return to normal. All in all, the economy also did quite well the first year under President Biden. Separate your politics from your investments. Many people have not liked past presidents, only to miss out on big gains. A strong economy matters a lot more to your investments than the makeup of Congress or who is in the White House.
Reach Out To Us: Whether it is politics or the pandemic that worry you, over reacting to short-term charts, or panicking from headline news, is no way to play with your portfolio. You need to have a good diversification strategy, and rebalance periodically, which is better than trying to time markets with frequent trades. Even though there were no major tax changes enacted in 2021, the winds of change may blow in later in the year, and we are ready to discuss action plans with clients in order to make the best of any potential changes in legislation.
We are here to assist you in making informed decisions. Contact me, Cory Lyon, with any questions you might have about low cost, well diversified, multi-asset class portfolios or investment strategies for the new year. If you would like to start the year off with a complimentary portfolio review, I can be reached at 561-209-1120 or clyon@tfgfa.com. I act as a fiduciary for all my clients.
TFG Financial Advisors, LLC is a registered investment advisor. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any securities, and past performance is not indicative of future results. Investments involve risk and are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed here.
