Dear reader,
To say there is a lot going on in the world these days is certainly an understatement. The first 60 days of 2022 have been quite eventful thus far.
First and foremost, Russia has invaded Ukraine and caused upheaval to European nations not seen since World War II. This troubling occurrence has shaken the world to its core, and renewed thoughts of nuclear aggression. There is a lot to unpack with this war, and many innocent lives will be lost and changed forever.
From a portfolio perspective, globalization has made the world much smaller, and so portfolios have become less immune to what occurs elsewhere in the world. We are now more connected than ever, and the effects of a war abroad have considerable consequences here.
Prior to this invasion, inflationary pressures on the prices of most goods were becoming a cause for concern. When you factor in that most governments went on a borrowing spree to manage the economical effects of Covid-19, it was inevitable that central banks would allow inflation to run (feel free to read the article at https://www.adamschacter.com/post/national-debt-explained).
As a result, we're feeling the pinch at the pumps and in the grocery stores. Adding to this are lingering supply chain issues due to Covid shutdowns, the lingering effects of the Suez Canal obstruction in 2021, shipping and cross-border stalls due to protective measures from to the Covid-19 pandemic, and more. And if that wasn't enough pressure on inflation, there are now widespread economic sanctions on the 20th largest exporting country and second largest oil exporter in the world (according to https://worldpopulationreview.com/country-rankings/exports-by-country).
And, because this still isn't near enough, interest rates - kept at historic lows for more than a decade - are presumed to be on the rise, which means that growth-oriented companies (companies that tend to have very profitable reinvestment opportunities) who were previously able to borrow at low interest rates to fund their lofty initiatives will likely now incur higher costs to do so. As will all borrowers, including those here in Canada who over-extended their personal finances to ensure they could participate in the housing market increase of the past 2 years...
What a backdrop!
What is all this doing to the stock market?
Here are some year-to-date (since January 1st, 2022) numbers from the S&P 500 (the largest 500 companies in the US) and the TSX 60 (the largest 60 companies in Canada) thus far in 2022.
All graphs below are source: Google
The S&P 500 Index has declined in aggregate -10.22% since January 1st, 2022:
The TXS 60 Index has declined in aggregate -1.46% since January 1st, 2022:
If we're looking at such a short time frame (2 months) it might also be of value to take a step back to see how the past 2 months are positioned in relation to the last 5 years. Here are 2 more graphs:
The S&P 500 has returned 80.70% over the past 5 years:
The TSX 60 Index has returned 37.63% over the past 5 years:
Google and the Google logo are registered trademarks of Google LLC. Used with permission.
There is a lot going on in the world today, but there is a lot going on in the world every day. From global pandemics, to wars. From interest rates to inflation. The world has a way of resiliently recovering, and we will always find a way to do so.
As for your portfolio, declines like these (whatever the reason) are quite normal and temporary. We do not know if it will continue to go lower, how low it will go, how long it will remain in a decline, and when it will recover. With all that we don't know, it's best to use what we do know.
The take-home here is to ensure you have a defined framework for long-term investing, to align your portfolio with your financial objectives, and to ensure your emotions (excitement when markets are up, fear when markets are down) don't cloud your judgment in sticking to the framework.
Any good financial and investment advisor has likely already articulated your long-term investment framework to you, so if you're already working with someone and need a refresh on your investing framework, revisit this with your advisor and spend some time understanding how your portfolio is positioned to ensure you're on track to meet your long-term financial goals and objectives.
Know that if you have any questions about your financial plan, would like our opinion on what this current financial landscape means for long-term investors, or would like a refresh on the framework we have in place for times like these, please never hesitate to reach out.
We are available and accessible to you any time through email, phone or video.
Be well and be safe,
Adam