2021 Fourth Quarter Newsletter
There were many cross currents; Washington, foreign countries, Covid, interest rates, almost too many to understand. In December, the markets seemed to calm down until the last two days of 2021; down again. Because of that volatility, it mattered when you took withdrawals and when you invested additional capital. The wrong day exacerbated the swings and the returns inside your investment portfolio.
The stock market has over performed since 2019 and valuations may be stretched. Earnings were excellent and along with the extra cash from Washington, propelled the markets to hit new all time highs. Care might be the word because somewhere out into the future there is a correction coming; one week, one month; one year; no one knows. We had a few minor corrections last year, so remember them and think how you slept.
I think 2022 will be about the same as the last quarter of ’21. I expect the Fed to follow through with their announcement, taper the bond buying and increase short term rates at least twice, maybe three times. That will put pressure on bonds and may hurt the tech sector because higher rates discount the future expected tech earnings. As I said in my last letter, inflation is not transitory and finally the Fed said the same thing. At 6.8%, it is higher than the last 30 years or so. I expect inflation to cool by the end of ’22 but we will have to wait and see. This inflation appears to be driven by demand from consumers paid by government money.
There are still many unfilled job openings and unemployment is below 200,000 which equates to not enough workers and maybe a spiral of wage demands. Omicron is very contagious but less serious than Delta and we may be back to “normal” by February. It has hit employment and all businesses must find employees to fulfill consumer demands, which is not easy.
Corporate earnings start mid-January and, according to the preliminary information I have read, I am expecting strong reports. That could result in an upward slope in market prices that may carry the markets through February. I think volatility will be higher than the last couple of years. Please re-visit your risk assessment to determine if you can accept that. Nothing is written in stone and your portfolio can be changed to fit your needs.
The meme stocks, AMC Entertainment and Game Stop, showed how not to invest. That was more gambling than investing. Anyone who bought early made money, the last to buy lost money.
My thinking for 2022 is the US stock markets will move upward, but at a much slower pace. The bond market will have difficulty with increasing interest rates. Foreign stock values are low and that may prove to be beneficial if the dollar reduces against other currencies. I am still favoring a stock portfolio consisting of growth and value and staying light on bonds. It appears the government largesse will be greatly curtailed so all that extra money for consumers to spend will not be available to push stocks higher. This may also bring down demand which may mean less company profits for the summer.
The beginning of the year is a good time to look at your required minimum distributions (RMD). If you are over age 72 or will reach age 72 in 2022, you are required to withdraw and pay tax on a portion of your retirement money. Congress wants that tax, so whether you need it or not, you must make a withdrawal. You will receive that information on your fund statements.
Again, please review your will and beneficiaries in your IRA’s and your life insurance. Life changes and it is important to update all beneficiaries. Remember, what is written in those plans is the way your money will be paid out. In IRA’s, it is important to have named beneficiaries to help with distributions. Non-spouse beneficiaries must withdraw their inherited IRA’s within 10 years.
Kevin has joined me full time and is doing a great job. He is concentrating on insurance and has two more security tests before he can learn and help me with investment portfolios. I will teach him and oversee everything he does until he is seasoned. Pattie, my office manager, has been a great addition and is doing very well. Because we need a larger office, we are moving to the second floor of my building in March.
I came up with some thoughts and I’ll put them here for your enjoyment.
Work results in a habit of responsibility and self-reliance.
Sometimes in investing, doing nothing is active.
When the cause you believe in becomes more important than the system, trouble follows.
Responsibility can be defined as self-reliance and self-determination.
Are you going to believe your own eyes and ears or what the politicians tell you?
OK, the last one isn’t mine, but it fits.
We are here to help you and we are not limited to investments. We have good contacts with accountants and attorneys that have helped guide us. Call us, we can help.
Thank you for your business and trust. We will always do what is best for you, it is how we define our practice.
James F. Mangam, Jr., CFP, CLU