The S&P 500 is having its worst start to a year since 1939. Almost all major sectors are sitting on year-to-date losses. Fixed income, the traditional ballast of a diversified portfolio, is also off to a historically rough start for the year, the worst since 1842. Treasuries, corporate bonds, and municipals have all declined this year. Holding cash carries its own risk with inflation sitting at multi-decade highs.
The team at Vantage has been anticipating the possibility of a more volatile market environment such as the one we find ourselves in today. Over the course of the past year, we have tactically adjusted our portfolios in preparation of potentially heightened volatility, such as tilting equity exposure towards higher quality areas of the market. When the Fed moved up its timetable for rate increases, we also adjusted our fixed income exposure to address the potential interest-rate risk. As it became apparent that inflation was going to be more persistent than expected, we adjusted again, increasing exposure to areas such as commodities, energy, and specialty fixed income linked to inflation.
Much of the volatility has been driven by the uncertainty surrounding how high and fast the Federal Reserve will raise rates to cool off inflation. During times of heightened volatility, we believe drastic shifts within portfolio allocations can contribute additional risks. We urge against attempting to time the market, as it has been proven to be extremely difficult to do so successfully. In addition, studies show that some of the market’s best days tend to occur within close proximity to the market’s worst days. Selling after a painful decline increases the risk of missing the rebound, further damaging a portfolios total return prospects and potential recovery.
The team at Vantage uses this type of market environment to reassess and confirm our convictions. We review our allocations for opportunities, looking for tactical adjustments on the margins, and rebalance as necessary. We believe the correct course of action is to remain invested and resist the urge to attempt to trade these wild and unpredictable swings. We believe this volatility is a point-in-time, and encourage investors to focus on their long-term horizons.
Should you want to discuss your accounts or financial plan, please do not hesitate to contact your Wealth Advisor. We are here, we are watching, and we are working to guide your accounts to the other side of this volatile period.