Broker Check

Have A Plan, Don't Predict

January 06, 2022

January 6, 2022

Dear Clients & Friends,

It is customary to begin my annual newsletter by restating our overall approach to investment advice, even in the context of a letter primarily focused on the previous year.  We are long-term, goal-focused, planning-driven advisors.  We believe that the key to financial success during our lifetime is to act continuously on a well-defined plan.  Additionally, we believe poor returns and even investment failure inevitably come from reacting to current economic and/or market events; and trying to anticipate the short-term direction of the stock market is a fool’s errand.  We cannot predict the future, but we can prepare for it.

We are convinced that the economy cannot be consistently forecast, nor the markets consistently timed.  Therefore, we believe that the only reliable way to fully capture long-term market returns is to ride out their frequent but historically temporary declines.  We believe the best time to buy equities for the long run is when you have the money, and the best time to sell is when you need the money. Everything else is just noise.

Just in the last four decades or so, the average annual price decline from peak to trough in the S&P 500 Index exceeded 14%.  One year in five, the decline has averaged at least twice that; and on two occasions (2000-2002 & 2007-2009), the Index has been cut in half.  Yet the S&P 500 came into 1980 at 106 and ended 2021 at 4,766; over those 42 years, its average compound rate of total return (which includes dividends reinvested) was more than 12% per year. (Source: Yahoo Finance).

These data points underscore my conviction that the essential challenge to successful long-term equity investing is neither intellectual nor financial, but rather temperamental: it is how one reacts, or chooses not to react, to market declines or wild upticks that ultimately defines their investment results.  These guiding principles will continue to govern the overall nature of my advice to you in the coming year… and beyond.

It would seem to be counterproductive to look at the past 12 months in complete isolation and make any meaningful conclusions.  The events of 2021 were really the second act of a drama that began in early 2020—that is of course—with the greatest global public health crisis in over a hundred years.

The world elected to respond to the onset of the pandemic essentially by shutting down the global economy—placing it in its own version of a medically induced coma.  In this country, we experienced the fastest economic recession ever, with S&P 500 Index declining 34% in just 33 calendar days.

Congress and the Federal Reserve responded immediately with a wave of fiscal and monetary stimulus which was and remains without historical precedent. This point cannot be overstressed: we are in the midst of a fiscal and monetary experiment which has no direct comparison.  This renders all economic forecasting—and all investment strategy based on such forecasts—highly speculative.  Therefore, if there were ever a time to just put our heads down and work our investment and financial plan—ignoring the noise—this is surely it.

If 2020 was the year of the virus, 2021 was the year of the vaccines.  Vaccinations as well as acquired natural immunity are on the upswing, regardless of how many more variants are discovered and trumpeted to the skies as the new apocalypse.  This fact, it seems to me, is the key to a coherent view of 2022.

Generally, I think that it is likely that in the coming year the deadliness of the virus will continue to wane, the world economy continues to reopen, corporate earnings continue to advance, the Federal Reserve begins draining excess liquidity from the banking system, resulting with interest rates moving higher, inflation begins to subside somewhat, and barring some other exogenous variable—which we can never really do—equity values will continue to advance, though at something less (and probably a lot less) than the blazing pace at which they've been soaring since the market bottom of March 2020.

Please don't mistake this for a forecast.  All I said, and now say again, is that these outcomes seem to me more likely than not.  I'm fully prepared to be wrong on any or all the above points; and if I am wrong, my recommendations to you will be unaffected, since our investment strategy is driven entirely by your financial plan and not at all by current economic or market conditions.

With that out of the way, allow me to offer a more personal observation.  To wit: these have undoubtedly been the two most shocking and terrifying years for investors since the Global Financial Crisis of 2008—first the outbreak of the pandemic, next the bitterly partisan election, then the pandemic's second major wave, and most recently a 40-year inflation spike.  You might not be human if you haven't experienced serious volatility fatigue at some point.  I know I have.

But like that earlier episode, what came to matter most was not what the economy or the markets did, but how investors responded in the moment.  If investors fled the equity market during either crisis—or, heaven forbid, both—their investment results seem unlikely to have ever recovered.  If on the other hand they kept acting on a long-term plan rather than reacting to current events, positive outcomes followed.

I wish you and your loved ones a very healthy and prosperous New Year!  As always, thank you for being our client.  It is a privilege to serve you.



Nicholas J. Enzweiler is a registered representative with, and securities offered through LPL Financial, member FINRA/SIPC. Investment advice offered through Strategic Wealth Advisors Group, a registered investment advisor. Strategic Wealth Advisors Group and Mercer Partners Wealth Management are separate entities from LPL Financial.

This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal.  Any economic forecasts set forth may not develop as predicted and are subject to change.

References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are unmanaged statistical composites and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges.

All performance referenced is historical and is no guarantee of future results.

All data is provided as of January 1, 2022.

All index data from FactSet, Yahoo Finance, JP Morgan Asset Management, and

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