It was another rough week for stocks, punctuated by one of Thursday’s most volatile days in stock market history. I will not bore you with the detail in the numbers, but let’s say watching the market swings can make even the heartiest of sailors a bit seasick. The volatility of late has been extreme and brutal to stomach.
Overvalued and Unbalanced
We have hit and closed at fresh 2022 lows for most indexes this week. The culmination of an overvalued market in 2021 fueled by extreme liquidity in our financial system led to inefficiencies and frankly, broken parts of our economy. It is not healthy for businesses to be unable to find workers. It is not beneficial for a significant portion of our society to sit at home collecting more money on unemployment and stimulus than to earn working. It is not fit for assets with little to no value to run on a rail of speculative fervor to the moon. This has led to the offsetting effects we expect in a delicate ecosystem such as an economy. The development of food prices rose 25% in a year. The impact of gas prices went up 60% in months. The cost of shelter (buying or renting) as a percentage of income hits its highest level in recorded history. These inefficiencies must be corrected so our ecosystem can return to normal and thrive again. Unfortunately, like a forest fire that rages to rebalance an overgrown forest, the rebalancing of ecosystems can be painful and violent.
We at Zynergy have believed for almost 18 months now that this return to balance was coming and would not be pretty. We have entered it and continue to maintain a conservative leaning in our portfolio as it plays out. Still, we are prepared and ready to take advantage of the panic and low asset prices, which are the inevitable outcome of this correction when offered.
Although these things are impossible to predict with any high degree of accuracy, I think we are finally entering the late innings of this bear market. There will still be pain ahead for the market and the economy, but the market will, without question, bottom long before the economy is in recovery mode. The market quickly adjusts to new information, while the economy can take several months.
Stay Calm, We Are!
We are not worried, and you should not be either. Although I am sure things will still get worse before they get better, I am also convinced that we are invested precisely as we should be to reduce volatility in this environment. Nothing going on in the world or the economy will adversely affect your ability to retire or stay retired comfortably. Like all bear markets in your investing life, this will be seen as nothing more than a fantastic buying opportunity when it is reflected in posterity.
Our strategy is simple, we remain conservative in our investing, we encourage you to hold more cash in emergency reserve than in a traditional market and economic environment, and we will take advantage of mean values when we see them. This will be done in a few ways. First, we will rebalance our portfolios to a more aggressive allocation. Second, we will call for cash and ask you to put any excess emergency reserves to work in your portfolio. Third, we will convert pre-tax IRAs to Roth amid a weak stock market, moving a more significant percentage of your investable assets to tax-free investing and taking advantage of a massive tax-free rally once recovery comes. We will continue to keep in touch to let you know the timing of the execution of each of these strategies as we see fit.
For the foreseeable future, I will continue to write a market update email at least once a week to discuss the market action of the week and our thoughts. I will write more often if warranted. In the meantime, avoid looking at your statement and live your life. We will ride out this storm the way we have ridden past storms together. I promise, when the dark clouds clear, the sun will shine all the brighter.
Contact Zynergy Retirement Planners
Please do not hesitate to contact Lauren, Bill, or me if you want to discuss your particular situation. We are here if you want to discuss your account, the market, or your financial plan, and we are available at the office or on our cell phones. As always, thank you for the faith that you have placed in Zynergy.