January 2022 Newsletter
In this edition, we’re going to focus on 2021 observations and 2022 outlooks!
Firm update: Dalton and I continue to the process of updating the Marketing name from Cedar Wealth Partners (which Dave is a founding partner) to Hobbs Wealth Advisors. As I’ve mentioned before, this is simply a name update to more clearly distinguish the services Dalton and I provide as compared to the broader Cedar Wealth firm. We’ll still be using the same processes we’ve used throughout the years.
At Hobbs Wealth Advisors, we work towards helping clients to stop second guessing their financial decisions, reducing and in some cases eliminating financial anxiety. We work towards this end through the use of time-tested processes that work year in and year out. We never try and predict the future or the markets, we can only control our response to outside stimuli. Clients of Hobbs Wealth Advisors are goal-focused, long-term, globally diversified, strategic investors who are seeking to be excellent stewards with their wealth.
This newsletter consists of our thoughts and insight about the top few questions and topics that have come up with clients and prospects over the last month. We want to keep our clients up to date with our latest thinking about financial trends and market news. Some of these opinions may play into our strategy, but not all apply.
Index Update (As of 12/31/2021 from Yahoo Finance)
S&P 500 (Large Cap): +28.75 2021 | +9.33% 20 Year Return
Russell 2000 (Mid, Small Cap): +14.82% 2021 | +9.29% 20 Year Return
Global Market – ex US: +8.41% 2021 | +7.53% 20 Year Return
1. Investment Observations: When I look at the above information, I’m tempted to think, “Wow the SP500 has done well! I wish all my money was just invested there in 2021.” Additionally, when you look at the past few years, the S&P 500 has been incredibly hard to beat. However, when we expand the view from the last few years to a 20 year time period, the investment markets tell a different story. This is precisely why we have an investment process. The process keeps everyone, including myself, accountable to proper global diversification. We have a saying around here that if you own enough of something to make a killing in it, you probably own enough to get killed by it too. Here are three interesting data points.
International positions were leading from 2002-2014
Small Cap out-performed Large Cap from 2002-2020
US Large Cap (SP 500) has only recently out-performed Small-Cap
Source: kwanti.com
Now that I’m at risk of really pouring it on, let me go one step further on why it’s so critical to have an investment process and additionally why historical returns are only ONE part of the investment selection process.
Below you’ll find two different data sets for two different funds. The first, CGMFX was the best performing fund during the Lost Decade of 2000-2009 and I can only image how many dollars flooded this fund in 2008-2009. The second fund ARKK, came to my attention from this article (Morningstar). ARKK posted triple digit returns in 2020 and then sunk in 2021. Sourced from Kwanti.com
2000-2009 CGMFX +17.87% vs S&P 500 of -1.07%
2010-2021 CGMFX -3.42% vs S&P 500 of +15.04%
ARKK in 2020 returned +157% vs S&P500 of +18.37
ARKK in 2021 returned -23.59% vs SP 500 of +28.75%
These are all reasons why we are goal-focused, long-term, globally strategic investors with a process that helps guide our investment decisions.
As we summarize inflation, we want you to know that we’re monitoring it and making course adjustments as needed. We aren’t fans of inflation like this, but we don’t think this will create a downward tailspin for the Global economy.
2. Investing Principles: Each year, I like to re-state some of our foundational investment principles. I talk about processes a lot. Processes with financial planning, with insurance management, with investment planning. These principles are going to most directly relate to Investment Planning
Investments serve your Financial Plan: You and I are long-term, goal-focused, plan driven investors. The key to lifetime financial success to is first define your desired outcome, then continually act upon your detailed financial plan.
Market Forecasting: We believe the market cannot be consistently timed or forecasted. Therefore, we believe that the only reliable way to capture the full long-term market return is to ride out the market ups along with the historically temporary market downs.
Diversification: Because we can’t know with any certainly which sector or part of the world is going to perform best or worse, we must stay disciplined with a global, multi-sector investment allocation that provides us with historically consistent long-term outcomes.
3. 2022 Observations: The below outlines some of the compiled thoughts we’ve gathered from some of the largest money managers in the world including BlackRock, JP Morgan, Natixis, Capital Group, First Trust, etc… Do not read the below as any prediction or forecast, we simply can’t know. But this is our view of the current economy.
2020 will forever be marked as the start of Covid-19, the market dropped about a third in 33 days. Most governments’ response was to shut down the global economy and our government flooded the world with economic stimulus
2021 has been marked with vaccines, boosters, new variants, natural immunity and for the world to start living with this virus
2022 we believe will be marked by the following
Continued acceptance that Covid-19 and it’s endless variants won’t be going away
The lethality of the virus continuing to wane
The world economy will continue to re-open, supply chain disruptions will revert to normal, businesses will be better suited and more diversified than ever before
Corporate earnings will hopefully continue their forward progression
The Federal Reserve will likely reduce excess liquidity along with some higher interest rates to reduce inflation
Equity values will continue their forward progression
Please don’t take any of this as market forecasting because it certainly isn’t. I’m fully prepared to be wrong on every point provided. These past couple years have given me, and I assume you as well, volatility fatigue. Between Covid, an incredibly partisan election, inflation’s 40-year high spike, and many other data points. I’m tired of all the highs and lows, but you know what, that’s actually what we expect and continue to expect going forward. This is precisely why I talk about controlling our response to outside stimuli.
For additional market insights: First Trust and the S&P at 5,250, Capital Group 2022 Outlook, LPL Research and S&P 500 at 5,050; JP Morgan's 71 slide guide
In closing: We of course cannot control what the market does from here and we cannot predict when the next market downturn will occur. But we can control our behavior to these outside events and continue to stick with our long-term investment strategy.
As always, thank you for your trust, if you have any questions/concerns please contact me.
-Dave
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David Hobbs, CFP®, CLTC | Wealth Advisor | Founding Partner
Offices in Indianapolis & Terre Haute
Office: 317-559-2940
Schedule a MEETING
Email: D.Hobbs@CedarWealthPartners.com
www.CedarWealthPartners.com
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An index is an unmanaged portfolio of specific securities, the performance of which is often used as a benchmark in judging the relative performance of certain asset classes. Investors cannot invest directly in an index. An index does not charge management fees or brokerage expenses, and no such fees or expenses were deducted from the performance shown.
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