Market Update: Stocks & Bonds are falling, yet portfolios remain resilient Posted on July 4, 2022
You will have no doubt seen all of the headlines in the papers and on TV about the volatility currently dominating financial markets. Driving this are conditions we have not seen in the last couple of decades, with interest rates rising at the fastest rate seen since 1994, while inflation is back to levels not witnessed since the mid-2000s. This is resulting in stocks and bonds falling together, while talk of a global recession continues to rise. Indeed, these are remarkable times.
We want to affirm that we are here for you and that the portfolios remain structurally sound and have weathered the recent volatility reasonably well. This is despite the quite unusual scenario whereby stocks and bonds are falling at the same time. So, while the broad stock market hasn’t fallen by as much as other periods (such as the 2020 covid crisis or the 2008 financial crisis) the average multi-asset portfolio has been impacted more than what it might normally. However, our portfolios have held up, with long-short funds and managed volatility funds, helping to better protect capital.
No losses are ever comfortable, even the short-term recoverable ones, but if we take a longer-term view the recent volatility does have some positives associated with it. For example, dividend and bond yields have increased meaningfully. All else being equal, this means many holdings in your portfolio are in a much better position going forward.
Your portfolio continues to act in a way that is consistent with your financial plan and the long-term objective, having enjoyed a good run before this setback. Looking at the overall quality of our portfolios, one of the key elements helping us is the idea of robustness, or put another way, ensuring portfolios can handle different types of setbacks. In this sense, we remain confident the selected portfolio’s ability to remain resilient to any further volatility that we may see in markets.
While noise and speculation can act as an emotional rollercoaster, the investment philosophy we are using involves buying assets we have reason to believe are undervalued and this setup will only help support the plan in the long term. It’s also worth pointing out there are things that we (we say this in the broadest sense, including the smartest minds in the industry) can’t and won’t ever know. We tend to follow Warren Buffett’s lead here and simply bucket this as the “unknowable” because dealing with such uncertainty is part of investing and a large reason why fear and greed have a habit of exaggerating market cycles. It is also why the overall robustness or resilience of your portfolio is so important to us. Turning to your personal situation, if your long-term goals or situation have changed, we may need to reassess your plan to help you reach those goals together. As always, we are very happy to help. Please let us know if you have any questions.
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