Tom Sedoric and Casey Snyder

There is no doubt that economic uncertainty can unleash a pandora’s box of emotions and potential reactions to events and trends out of our control. Folks had justifiable concerns about portfolios losing value and overall wealth loss from 1973 to 1975 when inflation was raging; similarly in 2002 and 2009 when markets took a significant drop. Wealth loss was, and still is, no laughing matter.

Yet, economic downturns are common and we believe the best investors are wise to discern the silver linings in the midst of one. While it is true wealth can be lost, it is equally valid that the turmoil can be seen in hindsight as the very starting point for wealth creation.

The so-called ‘crazy times’ period we are navigating today is, well, not so crazy in the grand scheme of things. Yes, we have a combination of surging post-pandemic inflation, global energy uncertainty, and domestic political turmoil. It’s clearly not a healthy mix. However, it is not the first time our society has been faced with a set of challenges so rightfully concerning.  It’s true that each factor and the combination thereof is unique unto itself – a ‘this time is different’ type scenario - but historical periods of chaos are not extraordinary. As esteemed economics writer Morgan Housel (author of The Psychology of Money) noted in a recent column, chaos can be deceiving:

“Even periods that we remember as stretches of good times were pockmarked with chaos. The glorious 1950s were actually a continuous chain of grief – adjusted for population growth, more Americans lost their jobs during the 1958 recession than did in any single month during the Great Recession of 2008.”

It’s easy to bemoan fate if your portfolio is down considerably. But if you realized the past decade of high equity returns and low interest rates were not sustainable and planned for the likelihood of a serious correction, the mindset for embracing opportunity is already in place. We tell our clients often and with emphasis that a realistic, durable plan only helps solidify our ability to act with confidence and take advantage when opportunities present themselves.

While no one can know the duration of this turmoil, precedence teaches us that down markets are vital in setting the stage for eventual future wealth creation. Of course, it’s easy to miss out on this opportunity if our focus remains on the noise around us. With the ability to emotionally flip the script, you might note that some of the present opportunities include: 

  • Higher income streams. The swift and dramatic rise of interest rates may be the cause of much market pain, but we believe for the first time in nearly thirteen years, bonds are priced to deliver attractive returns. Higher interest rates equate to higher future income streams, and that’s not a bad deal for many investors. 
  • Tax loss harvesting. Taxes are our greatest lifetime expense, and by realizing losses during down markets through swaps and other strategies, you may collect tax credits with the IRS to help offset future gains.
  • Improved long-term projections. Many don’t realize that projected long-term returns at the end of 2021 were historically bad . With higher interest rates and lower equity valuations, projected long-term returns have improved significantly.  

When put into context, bear markets not only provide a foundation for the next bull market, but they are also an ongoing master class of worthy lessons. In our opinion, there is no greater time to invest new money and take appropriately increased risks than when valuations fall (as opposed to trying to time market peaks). Bear markets also remind us not to take risks beyond that which our plan and lifestyle can handle. Unfortunately, this vital fundamental often falls prey to amnesia at the end of a bull market.

In the end, there is no question that market turmoil can elicit unsettling emotions. It’s also true that emotions and our behavioral reactions to them are often one of the primary obstacles standing in the way of long-term success. Regardless of our stage of life, if we can focus on the silver linings that are presented to us during times like these, we may just set the stage for the very success we as investors seek.   

The information contained in this article is not a solicitation to purchase or sell investments. Any information presented is general in nature and not intended to provide individually tailored investment advice. The strategies and/or investments referenced may not be suitable for all investors as the appropriateness of a particular investment or strategy will depend on an investor's individual circumstances and objectives. Investing involves risks and there is always the potential of losing money when you invest. The views expressed herein are those of the author and may not necessarily reflect the views of Steward Partners or its affiliates. Information contained herein has been obtained from sources considered to be reliable, but we do not guarantee their accuracy or completeness. 
Steward Partners Investment Solutions, LLC (“Steward Partners”), its affiliates and Steward Partners Wealth Managers do not provide tax or legal advice.  You should consult with your tax advisor for matters involving taxation and tax planning and their attorney for matters involving trust and estate planning and other legal matters.

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