Market Volatility
Monthly AIRE Perspectives – February 2022
Dear Friends and Valued Clients,
Please see below for The MAP – Monthly AIRE Perspectives for February 2022.
Annual Disclosures
Each year, we are required to file form CRS (“Client Relationship Summary”) along with highlighted changes. Please click here for our updated form CRS with highlighted changes. Additionally, you can find all of our firm and advisor disclosures on our website by clicking here or by going to our website and clicking on “Disclosures” at the bottom of any page.
If you would like to discuss further or have any questions, please contact me directly at amir.monsefi@aireadvisors.com.
Market Volatility
Given the current volatility in the markets, we would like to take this opportunity to provide some perspective, and also to remind you of our process and what we view as best practices in investing. When markets get volatile, clients sometimes wonder, “what should we be doing now?” Well, if you have invested based upon a well thought-out plan and asset allocation model that has been customized to your goals, timeframe, risk tolerance and objectives, the answer most of the time is probably “nothing.” The reason for this, as we have always maintained, is because we believe that long-term investing success tends to come from sticking to the principles of proper portfolio construction and planning, rather than from predictions.
The one prediction that has been probably the most consistent is that stocks and real estate will likely be higher in 10 years. In fact, historically, the US stock market has been up 73% of the time over the course of 1 year, 87% of the time over the course of 5 years, more than 98% of the time over the course of 10 years, and 100% of the time over the course of 15 years. Having said this, there is no guarantee that the markets will be up over the next 10 or 15 years. In fact, Europe, Japan and other regions of the world have had 15- and 20-year losing periods, but historically, betting against a rising market in the long run has not been favorable.
So the question is: if you believe the markets will be higher in 10 years or longer, then what should you do in the meantime to maximize your return? Should you try to get in and out of markets during ups and downs, or should you stay the course? The overwhelming amount of statistics and data suggests that you are better off staying the course, rather than making predictions. To us, the answer has been – and continues to be – that we only invest funds in the stock market that we will not need to tap into for at least several years (and ideally at least 10 years), and we expect to have numerous market drops throughout that time period. In fact, historically, a drop of 10% or more has occurred about once a year:
| Type of decline | Average frequency* | Average length† | Last occurrence |
|---|---|---|---|
| –5% or more | About 3 times a year | 43 days | October 2020 |
| –10% or more | About once a year | 110 days | September 2020 |
| –15% or more | About once every 3 years | 251 days | March 2020 |
| –20% or more | About once every 6 years | 370 days | March 2020 |
Source: RIMES, Standard & Poor's (courtesy of American Funds) / †Measures market high to market low.
As you can see, this type of volatility is a regular part of investing in stocks, so for most people, staying the course will likely be the best course of action. That is not to say that we should not review our portfolios on a regular basis, especially during times like this. One of the most powerful strategies, if available, is to consider harvesting tax losses, while staying invested. For example, if you own a small cap ETF that is down, you may be able to sell it, book the loss, then buy a different holding (not in the same index, but one that is highly correlated to the first) and keep your market exposure while booking a loss that you can use this year and / or in future years against potential gains. This is one of the potential opportunities that can arise as a result of market drops. The question about what to do today is one that is different for each person. We will be in touch with you in the coming days and weeks to provide you with updates and recommendations specific to each of your financial plans.
To add some outside perspective to our viewpoints above, we would like to share with you an interesting article from Fidelity Investments regarding tips on investing, sent to us by a longstanding and valued client: 6 Tips to Navigate Volatile Markets.
Behind the Scenes: Annual Research Project
As we mentioned in last month’s MAP, each year in January and February, we conduct a comprehensive review of each of the asset classes we use in our asset allocation portfolios, as well as each holding we have chosen for each of those asset classes. This is normally a 1-2 month process that entails our connecting with fund managers, ETF companies, analysts and other industry professionals, in addition to conducting research on correlations, asset classes and more. Every time we begin this research, we have an underlying assumption that we will probably not end up making any new changes, since we have done this project for years and have continually honed in on the asset classes and investments we chose. We have just completed this research and have made multiple changes to our asset classes and to some of the choices within our asset classes. We will be in touch throughout the coming month to individually review these changes.
AIRE Advisors Welcomes James Naify!
AIRE Advisors is pleased to welcome James Naify to our team in the role of Senior Vice President – Wealth Advisor!
A native of California, Jim spent almost 20 years as an executive in the entertainment industry before entering wealth management in 2001. From 1980 to 1997, he served in a variety of capacities at 20th Century Fox, culminating in his role as Senior Vice President and General Sales Manager of Fox-Searchlight Pictures. Following his time there, Jim spent three years as the Head Film Buyer for Century Theaters.
For more than two decades, Jim has been serving ultra-high net-worth clients and their families as a Wealth Advisor at UBS, then at Merrill Lynch. He joins AIRE Advisors with a focus on helping families with generational wealth planning and holistic wealth management. Outside the office, Jim enjoys golf, reading, and is an avid movie buff
Once again, we would like to thank you for your trust and loyalty, and look forward to speaking with you in the upcoming month.
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