With the market falling, we wanted to get a quick video out to our clients and advisors with an update on how SEM is currently positioned. You can watch the six minute video below or scroll down for the highlights.
Click the YouTube logo for full screen viewing and other options.
The first thing we must understand is what the focus of the market is:
- Inflation will continue to be a problem – it may have "peaked", but higher inflation may be entrenched in the economy over the next year
- The Federal Reserve has barely begun fighting inflation (and has told us they will continue to fight)
- Both of the above will hurt the economy
- This also means corporate earnings will be hurt
- Stocks remain overvalued – they started the year overvalued and with the drop in earnings may be even more overvalued despite the losses in the market
Most of us either don't remember or have never experienced a TRUE bear market. This chart shows what most of us remember:
Buying the dips works – until it doesn't.
Zooming out we see the cycle the markets continue to go through.
Whenever we have excess returns over longer periods of time they are removed. We are likely in that period now.
Most important for SEM clients and advisors – we are fully defensive. We almost always recommend clients utilize more than one of SEM's strategies to offer a smoother, more consistent portfolio experience. This bubble chart illustrates how we are positioned across the risk-return spectrum.
From an investment perspective, please understand:
- We are fully defensive now
- We are performing as we would expect (we plan on some losses as that is the only way to ensure we also capture the upside of the various assets we are investing in.)
- Diversification is helping
The most critical thing to understand is the investment allocations inside SEM are based on our Behavioral Portfolio Approach.
The individual allocation for each client is determined by the overall financial plan, the cash flow strategy, the overall risk tolerance, the investment objectives, and the investment personality of each client. If you would like a portfolio review, you can start the process at Risk.SEMWealth.com.
Things to remember:
- Bear markets are a process – not an event – we will continue to see large fluctuations, but until the DATA says otherwise, we should assume we will remain in a bear market.
- The bottom will occur when things feel the "worst" – we cannot wait until we feel better to jump back in.
- SEM's data driven process has already taken money off the table which allows us the opportunity to get back in. The DATA, not our opinions or feelings will determine this.
Finally, it is important to reiterate our Bear Market Tips from our June update:
- Don't panic – we planned for this!
- Ignore the media – they will feed into negativity on the way down and euphoria/excitement on the way up.
- Be patient – we are already seeing tremendous opportunities developing, but having money available to implement when the timing is better is necessary.
As always, we want to thank our clients and advisors for the trust and support placed in SEM. It is something we never take lightly.
To watch our Bear Market Tips, click the box below:
Jeff Hybiak, CFA
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For those looking for a different approach to our updates, we launched a TikTok and Instagram page to provide shorter-form videos. Our goal is to provide financial tips, advice, market updates and general financial literacy information to more people.
Here's an example of one of the videos:
@finance_nerd #federalreserve #inflation2022 #interestratesrising #interestrates2022 #pressconference #stopinflation #americanpeople #goingforward #neverhappened ♬ Crowd of People Talking Ambience (Mingling Chatter Chatting) [Background Ambient Noise Sound Effect] - Finnolia Sound Effects
