Investment Insights - “He Who Fails to Plan is Planning to Fail”

To say financial markets have been under stress in 2022 is an understatement – first it was bonds, followed by stocks, and recently even commodities have come under pressure. Aside from the US Dollar, which has increased in value more than 10% this year, places to hide have been few are far between.

The Bloomberg US Aggregate Bond Index had one of its worst first halves of a year since its inception in 1973. The chart below, created by Hedgeye Risk Management with data from Bloomberg, shows the first half of 2022 saw the largest drawdown from the peak for US Treasury securities ever.

Equity returns have been worse. The Russell 3000 Index, a proxy for the entire US stock market, had a return of -21.10% as of the end of the second quarter. Growth stocks have been hit hard, with the Russell 1000 Growth Index returning -28.07% year-to-date. Prior to recent weeks, the only market that has seen consistently strong performance so far this year has been the commodities market. This is primarily driven by the ongoing rise in inflation exacerbated by tight supply chain dynamics. Layer on added geopolitical risk underpinning energy prices and it is easy to understand commodity strength.

Financial markets have digested these undercurrents and continue to weigh them against a backdrop of a Federal Reserve that is tightening monetary policy. The Fed has raised their benchmark interest rate, the Federal Funds rate, by 1.50% through just the first six months of the year, the equivalent of six 0.25% interest rate hikes. A Federal Reserve increasing interest rates to fight inflation into a slowing economy typically has been a poor environment for risk assets.

Winston Churchill once stated, “He who fails to plan is planning to fail” (a slight variation of the well-known Benjamin Franklin quote).

So, did you have a financial plan in place to address how to handle such a challenging environment? Did you know in advance of this recent set of circumstances what is considered a “normal” fluctuation in your portfolio?

If not, you’re at significant risk of potentially committing a cardinal sin of long-term investing – letting emotion take the wheel and making a kneejerk reaction.

A well-crafted financial plan should include an asset allocation strategy aimed at achieving two specific outcomes. First, the asset allocation, or mix of cash, bonds, stocks, and alternative investments, should line up with your specific short- and long-term financial goals without taking an unnecessary amount of risk to create a reasonable probability of achieving those goals. Second, the asset allocation should allow you to psychologically weather the inevitable storms that come, such that drastic changes need not be made in a moment of emotional panic.

When a plan is in place, you benefit by shifting your focus away from day-to-day market fluctuations and instead toward goal attainment. Knowing where you are heading and how you will get there can provide an unmatched level of confidence amid challenging investment environments.

Heartland Bank’s Wealth Management team is equipped with the sophisticated technology and experienced advisors required to employ a detailed and disciplined financial planning process to help its clients develop a plan to reach their goals.

The inputs of the financial planning process are relatively simple: assets, liabilities, income, and expenses. Coupled with your specific goals, using this information enables us to show where you stand today and generate a strategy that shows how likely you are to achieve your stated goals in the future.

We work collaboratively with our financial planning clients to create tailored, customized plans with immediately actionable advice. The plans we build for clients address strategies for social security, retirement income, tax management, education, charitable giving, and asset allocation in a dynamic and engaging way.

Once the plan is in place, we partner with our clients to implement the necessary action steps, conduct ongoing monitoring of plan progress, and make sure we stay on track via regular plan updates.

If this planning process sounds beneficial to you or someone you know, please reach out to your Wealth Advisor or our Financial Planning Advisor, Zack Brewer, CFP^®, today.

Please send an email to pvmasso@hbtbank.com* or give us a call to recommend topics you would like presented in future issues of Investment Insights.