Hi, this is Michael Joyce from Agili, Your Personal CFO. And I’m pleased to share with you our thoughts and viewpoints for the Winter of 2022.
Current and Historical Stock Market Performance
As I record this video, just after the new year, it occurs to me that this is the time of year that a lot of people make New Year’s resolutions and a lot of them revolve around their finances. So, if your New Year’s resolution this year is to change course, to take your profits, to sell your risk assets because you’re convinced that the other shoe is about to drop for the stock market and other assets, I would just say, “Stop.” Take a deep breath. It’s going to be okay.
Yes, the markets are at all-time highs. Yes, the stock market indices are pretty pricey right now. And, yes, we’re going to have a correction at some point. We went through the entirety of 2021 without having a 10% correction, which is uncommon. But corrections are temporary. Corrections are short-term and most of your financial goals and objectives are long-term. And over the long-term, you do have to invest for growth.
The Dow Jones Industrial Average is now 50 times higher than it was when I started in the financial industry. That’s 5-0. So, that shows how the long-term has more impact. People have tried to time the market over the years and there have been numerous academic studies that have shown that they’ve done pretty poorly. Typically, the average investor has had a rate of return over the past 30 years that is barely over the rate of inflation. So, you do want to align your investment strategy with your long-term goals.
Speculating vs. Long-Term Investing
If your New Year’s resolution is that you are going to speculate, that you’re going to try to find “the next big thing,” whether you’re going to invest in crypto-currencies or try to find these IPOs or these unicorn companies that might make it in the long-term but they garner $100 billion valuations with no prospects for positive cash flows for many years – I would say, think about why you’re doing that and how that relates to your long-term goals and objectives. Are you just trying to hit the home run right now? Are you trying to invest in something because everybody else is? Or are you investing in things simply because they’ve gone up and you figure that they have to continue to go up? That is also not really investing; that is speculation and really is not going to help you meet your long-term goals and objectives.
Inflation and Interest Rates
The stock market has, indeed, done pretty well – very well – over the past year and for much of the year, it’s been climbing this wall of worry. People have been worried about all different things. And one of the biggest worries has been inflation – and that’s been realized. Inflation has been running pretty high over the past quarter.
The Federal Reserve was very sanguine about inflation, saying it was going to be transitory. And we were pretty skeptical about that. We thought there was a good chance inflation was going to be more persistent than the Fed thought it would be. And that has turned out to be the case – and more recently, very recently – the Fed has come to agree with us.
Now, I do want to say, the Fed didn’t really ask our opinion. I mean, there’s no Bat Phone between Agili and the Federal Reserve where they’re asking our opinion, but nevertheless, they are taking some steps right now to help on the demand side of higher inflation. They’re decreasing their bond-buying program and over the next year they will slowly raise some short-term interest rates to combat inflation.
But even if they raise rates, interest rates are going to be still very low and not really high enough to pull a lot of money out of the markets. I mean, the markets are trading at 22 times earnings right now, but earnings growth has been robust. And that will probably continue, at least in the short-term.
So, I wouldn’t necessarily expect that the other shoe is going to drop for the markets in the near-term. But we do want to be somewhat more cautious than we were certainly after the pandemic hit, when we were more aggressive at that point in time. You should be taking profits on things that do become over-valued but also looking for opportunities along the way.
Q4 2021 Estimated Tax Payments – Due January 18, 2022
From a financial planning perspective, there are a couple of things I want to talk about as we enter the new year. The first is an important date – and that date is January 18, 2022. That is the date that you can make your last quarterly estimated payment for 2021 taxes. And why that is important is because a lot of people made more money in 2021 than in 2020. There was, in many cases, more investment income. Mutual funds made larger capital gains distributions than has been normal. So, you want to make sure that either through paycheck withholding or quarterly estimated payments that you at least have paid in enough by January 18th that you will avoid penalty when you do file your taxes later on this year. And this would be your last chance to do so.
Take Stock of Your Financial Position
The beginning of the year is also a good time to take stock of your financial position. Corporations rely on their balance sheets, their income statements, their cash flow statements as a basis for making financial decisions. We think individuals should do that too. We do net worth statements, we do cash flow statements, we do financial independence models – and that helps you know what you have that will help you achieve your long-term goals, and helps you plan your cash flow both in the short-term and over the long-term.
And, of course, your financial strategist at Agili is here to help you with all that. So, if you do have any questions, certainly please contact your financial strategist at Agili or contact me. I’ve been very pleased to share with you our thoughts and viewpoints for the Winter of 2022. Thanks a lot — and stay safe and stay warm.