Inflation, Interest Rates, and the Market

Well, it’s official. The third quarter has ended in bear market territory across multiple markets. To place that news into meaningful context, consider these two questions:

1. In more stable times, did you have a predetermined plan for what you would and would not do during the next bear market?

“Great investment experiences treat most portfolio decisions as non-decisions. They’ve been pre-decided and are immune to market prices, sentiment, and human judgment. They remove agency and thus reduce regret.”

— Rubin Miller, Fortunes & Frictions

If you’ve been a Black Walnut Wealth Management client for a while, you can probably recall our similar advice. Our goal has always been to plan long-term, so you wouldn’t have to decide much when the next bear market came along.

2. Even if you had disciplined bear market plans, have you wondered whether you should change them anyway?

Admittedly, it’s a tall order to ignore recent market returns without being haunted by at least a little indecision. Given how unsettling many third-quarter and year-to-date events and performances have been, you may struggle to overlook the worst-case predictions and “this time it’s different” warnings about what may lie ahead.

Perhaps the scariest part isn’t necessarily the numbers but the lingering uncertainty. When will it end?

Unfortunately, we can’t answer that or guarantee the doomsday predictors aren’t right. But we can be inspired to reframe the uncertainty and understand what to make of it based on recent reflections from Dimensional Fund Advisors David Booth:

“You can feel empowered by uncertainty instead of beaten down by it. Without uncertainty, there would be no opportunity… If you think about it, the life equivalent of compound interest is wisdom. Learning from the past helps you make better decisions in the future, and those lessons build on one another over time.”

In that context, let’s look back to the last time we encountered some of the inflationary and potentially recessionary economic conditions we’re currently enduring. We now have the wisdom to know just how wrong an infamous 1979 BusinessWeek cover story was when it declared “The Death of Equities.” Forty years later, in 2019, a Bloomberg columnist described how they were “still getting grief” about that article:

“Three years after [“The Death of Equities”] appeared, the stock market hit bottom and then began a remarkable resurgence. The total return on the Standard & Poor’s 500-stock index since its 1982 low, with dividends reinvested, has been nearly 7,000%. Not bad for a corpse.”

It would’ve been a bad idea to give up on capital markets in 1979. It remains a bad idea to give up on them today, especially given the compound wisdom we’ve acquired since then. Durable, well-diversified asset allocation remains your best strategy in both bull and bear markets.

It is important to have a globally diversified mix of stock, bond, and appropriate alternative investments. We base our portfolios on the assumption that markets are durable over the years and frequently uncertain in real-time (And yes, as we’re seeing, that can apply to bond markets too.) Here are a few bear market actions worth considering at this time:

Staying with your well-planned portfolio mix (reallocating when appropriate for your financial goals)
Periodically rebalancing to stay on target
Tax-loss harvesting in your taxable accounts
Adding even more investable assets to your portfolio while prices are low (especially if you’ve got a long time to invest)
Taking a close look at your discretionary spending (especially if you’re in early retirement)

How else can we assist you and your loved ones at this time? Please let us know if we can answer any questions about current market conditions or anything else that may be on your mind.

About Eric

Eric Braund is the Founder and Chief Financial Officer at Black Walnut Wealth Management, a financial advisory firm providing financial counsel and fiduciary investment services to individuals, families, and private foundations throughout the Traverse City and Northern Michigan region. He is a CERTIFIED FINANCIAL PLANNER™ professional and a Chartered Retirement Planning Counselor™ with 25 years of experience. He also has a bachelor’s degree in finance from Hillsdale College. Braund is passionate about offering services rooted in hard facts and sound reasoning combined with meaningful, long-term relationships so that his clients can experience less stress and have more time and energy to invest in what they love.

Braund is a Northern Michigan native who truly enjoys all the area offers, including hiking, biking, swimming, skiing, volleyball, and boating. He loves spending time with his family — his wife, Jodi, and his two children — and maintaining a balanced life. To learn more about Eric Braund, connect with him on LinkedIn.

Recent Insights from Black Walnut Wealth Management