Year End Client Letter
To the Clients of Resilient Asset Management:
Greetings from World HQ in Memphis, TN. If I blindfolded and then plopped you in Downtown Memphis on December 1st, 2022, based solely on the weather, you would have had pretty much no clue where you were. Memphis has had heat (70, trust me), snow (believe it), ice cold (literally), and now torrential rain (this morning). Indeed, the storm that meandered across the US in December was the real deal...just ask Southwest Airlines. End of weather brief.
Moving along to financial matters...as some may recall, perhaps vividly, I wrote the following to you last year about 2021's Investment Returns:
"Take a picture, the S&P 500 returned 28.7% last year...an uncommon result you should savor."
I hope some of you did some savoring while also noting the other tidbit I added a few sentences later:
Market participants should ALL know that a -28.7% Year is going to happen at some point...it's not "if", but "when".
Well, the "when" part did not disappoint...as I type this, barring a monumental drop in the final hours of trading in 2022, the S&P 500 will book an approximate 20% loss for the year. Adding to the malaise, the bond market - the ballast of our portfolios - will book about a 13% loss.
This unique occurrence - the stock and bond market falling in the same calendar year - is indeed unusual...it's happened only 3 times since 1928 - in 1931, 1941, and 1969. For statisticians, that is only about 4% of the time. Whatever the outcome, you should absolutely realize, and appreciate, that anything is possible in capital markets...indeed, just as you should keep your seatbelt fastened at all possible times on an airplane, so too should you similarly buckle in while participating in capital markets.
And for those who lend any sort of weight to market predictions...looking back to a report in late December 2021 when the S&P 500 was at 4,766, the median of 12 forecasts for 2022's stock market performance was a Year-End 2022 S&P 500 Value of 4,825. Interestingly the high forecast was 5,300 and the low (yes, the low) was 4,400. With 2 hours and 13 minutes of trading left, the S&P 500 sits at 3,809. All 12 of the individuals - purported experts I'm sure - demonstrably failed in their predictions. Indeed, if they'd have been Price is Right contestants, all would have lost to the poor soul who bid 1. My suggestion: Beware of market prognostications - in December and January, they sprout like bamboo.
A habit I picked up once COVID struck in 2020 was to take screenshots of predictions that stuck out to me...there were some very interesting ones in March, 2020 - those predicting travel's demise are now particularly humorous. One such screenshot I took this year was the following from Goldman Sachs on August 11, 2022:
"We see gasoline above $5 (per gallon) and Brent (Crude Oil) at $130/Barrel by the end of the year." -Goldman SachsAt the time (8/11/2022), Gas at the pump, according to AAA, was $3.99 per gallon; Brent Crude Oil was $107.19.As I am typing this (December 31st), Gas at the pump, according to AAA, is $3.21 per gallon; Brent Crude Oil is $81.90.
Not even the price direction was correct.
I have no specific knowledge of Goldman Sach's research process and know no one who is either an analyst or economist for that Firm. Regardless, I think it's very safe to say that all aspects of research at Goldman are amongst the best in the world. However, as we can see, access to world-class resources doesn't always result in accurate forecasts.
Making predictions is a double-tough proposition...I wouldn't want to make a living making them - I have enough about which to be humble. With economic predictions of any stripe, the primary culprit is the sheer magnitude of contributing factors to the outcomes...it is practically impossible to account for every potentiality. For example, during the 2022 Olympics, no reputable source of which I am aware predicted the Russian invasion of the Ukraine. So what's the so what? Very simply, ignore market predictions...acting upon them can be hazardous to your financial well-being.
These market prediction lessons are a didactic example of the practical benefits of controlling what we can control. In truth, no one knows beforehand where markets are going next year, or any year for that matter...I'm sorry, that's just the way it is. However, although we can't know with certainty where some things are going, we damn-well can and better know where we are today. Please be absolutely certain that Resilient Asset Management sweats blood knowing and optimizing each of our Clients' current situations. Only after mastering today should we thoughtfully ponder tomorrow.
And that leads to my next point of controlling those things upon which you have significant influence. Neither you nor I can move the price of Alphabet, GM, or any ETF. However, we can absolutely control the clarity of our Estate Plan while also maintaining an adequate Emergency Fund. We can 100% glean every cent of matching funds possible from our employers. And we can certainly look to insure against those calamities that could bring us or our loved ones harm. Spending less than we make is the golden rule of personal finance. All of this is not complicated, though unfortunately, it's also not easy.
In my experience as a Financial Professional, I have found that focusing on the aforementioned control points usually leads to extreme financial organization, which then results in an all-weather (pardon the pun) resilience in one's finances. And even better, once those control points are sorted, all that's required is patience on the capital markets. Sooner or later, over the long-term, markets tend to rise. For those who are both resilient AND patient, happy results lie in wait. For those who rely on speculative appreciation and sidestep the financial organization I've just described - well, you can talk to the FTX folks about that ideology.
About FTX - I was going to dedicate a few paragraphs to it, though I will save you a rather harsh critique. For me, if Warren Buffett politely says to avoid cryptocurrency and Charlie Munger calls it "Rat Urine squared", that's good enough analysis for me....avoid cryptocurrencies like the plague.
Looking ahead, I remain as optimistic as ever about my United States and capital markets in general. While worries will always dominate headlines, you should know that millions of entrepreneurs labor every day to make the world a better place, and sooner or later, their successes come to the capital markets. It's not a straight path unfortunately...great successes are typically littered with setbacks along the way.
Transitioning to some more practical matters, the inflationary trend has brought some much needed yield to fixed-income securities. Concomitantly, those receiving Military Pensions, VA Disability Benefits, or Social Security payments will see among the largest COLA increases in a long while. And even Medicare recipients get a break with slightly lower 2023 premiums...the economic news isn't all so bad!
401(k) and IRA contribution limits will also have nice increases this year as well. There were a bevy of changes as a result of the SECURE 2.0 Act. Rather than describe all the changes here - which would add numerous paragraphs to this - we will weave the changes into our regular correspondence with those Clients to whom the rule changes apply.
In closing, please don't lament too much about 2022's market performance. The future of our United States and the World remains decidedly positive. While I generally shun making predictions in public, I am certain enough to predict that our collective best days lie ahead...feel free to take a screenshot of that prognostication if you like.
Thank you for trusting Resilient Asset Management to serve you and your families in achieving your financial goals. Here is to a fantastic 2023.
All the best,
Christopher Flis, CFP®
Resilient Asset Management