Quarterly Letter January 2023
Our goal with a bucket-based planning and investing strategy is to limit the impact financial markets have on how you spend your time. Declines in financial markets broadly tagged 2022 as one of the worst stock and bond combined performances. Looking back to the 1920s, this has only occurred just two percent of the time. We plan for volatility in financial markets, and 2022 was undoubtedly one for the record book.
Q4 Snapshot
U.S. stocks: +7.5%
International stocks: +14.3%
Bonds: +1.9%
On the Year (2022)
U.S. stocks: -18%
International stocks: -16%
Bonds: -13%
Stocks have continued to advance during the first few weeks of 2023, which has been welcome news and a contrast to much of 2022.
Factors that Got Us Here
Below-average interest rates prior to 2022, where money was inexpensive to borrow, increased into higher and more average interest rates. Growth and technology stock prices, broadly, were high performers leading into 2022 however reversed course in what was a challenging year for most sectors. Dividend-paying value stocks, and commodities were outperformers on the year.
As measured by the U.S. Consumer Price Index (CPI), year-over-year inflation levels peaked in the middle of 2022 at a 40-year high. While the rate of change has since decelerated, inflation remains elevated. The shelter component of CPI remains high, helping keep overall inflation at above-average levels. Employment remains strong as of December’s data, with the unemployment rate at 3.5%. Some economists consider 4-5% to be full employment. That we are below that guidepost, coupled with high inflation, has given the U.S. Federal Reserve the green light to continue increasing short-term interest rates, a theme that will likely continue during the first part of 2023.
Time in the Market
We diversify investments across time and asset types to limit the risk of a "bad year" materially impacting future success. In the short-term, years like 2022, when stocks and bonds both finish below average, it may be easy to feel down about the present. We understand. The importance of today, with all its opportunity and challenges, is why we segment dollars within your portfolio. Our approach is to plan for the future while helping you get today right.
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