Quarterly Investment Foundations Second Quarter 2023

May 3, 2023


Calvin D. Wiersma

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Calvin D. Wiersma


Financial Advisor


Mastering The Subject

Should I Stay or Should I Go?

Sticking to your investment plan is a lot like attending class so that you can pass the final exam. Mastering a subject is never a straight line – some topics click right away, and some create more confusion. When I was learning Spanish, many classes left me feeling lost and like I was further behind than when I started. The stock and bond markets have their ups and downs too. Most days, there is an equal chance that your portfolio will have positive or negative returns.

Looking at historical data can be helpful to see the big picture. The consequences of missing the days where things “click” can be significant. Yet, often the best market returns happen following the worst losses – we just never know when things will “click.” I was curious to see what would happen to a portfolio if you “skipped class.” I found that if you missed the best month of returns in a 60% stock and 40% bond portfolio since 1990, you would have missed out on $59,909 of growth. If you had skipped the best year, your growth would be over $150,000 less than if you had stayed invested.

Past performance does not guarantee future results. This conceptual example assumes an investment that tracks the returns of a portfolio with 60% invested in the MSCI All Country Index (gross of dividends) and 40% invested in the Bloomberg Global Aggregate Bond Index (hedged to USD). This example includes the impact of annual rebalancing but does not reflect the after-tax returns, which would lower the growth of the portfolio. “Best Month/Quarter/Year” was determined by ranking the period return from highest to lowest and replacing the period with the highest return with an investment of 100% to cash. Investing involves risk, the value of your investment will fluctuate over time and you may gain or lose money.

If I miss the day in Spanish class where we learn how to put a sentence together with verbs and tenses, the time I’ve spent learning vocabulary will be wasted! When progress is slow or our confidence is shaken, we are tempted to take a break from participating in the market. I too wanted to skip class somedays! Yet, by sticking it out through the down days so that you can participate in the days when the markets make forward progress you will be rewarded in the long run.

Market Check-In:

- Inverted Rates Continue: The Federal Reserve continues to signal higher rates for longer as they continue to try to tamp down inflation. Short-term interest rates remain higher than long-term rates and the yield on the 10-year Treasury bill reached 4% at the beginning of March. Rates for bonds with maturities of one year or more decreased by the end of March to levels lower than at the end of 2022. The price of bonds has an inverse relationship with yields - with falling interest rates, the price of bonds increased during the quarter.

- False Start for Stocks: In January, stocks around the world had positive returns after data suggested inflation was coming down and central banks around the world would slow increases in interest rates. Since the start of February, stocks have taken a step back. The labor market remains strong and inflation has not continued the same downward trajectory it was on in the fourth quarter of 2022. This led to concerns that interest rates will stay higher for longer. Stocks in international developed markets outperformed the US and emerging markets.

- Which Way Forward: The bond market is forecasting that central banks will decrease interest rates in the second half of 2023 as a recession sets in. However, other economic data suggests that a recession is not imminent. The US labor market added more jobs than expected and wage growth is about 5% versus a pre-pandemic average of 2.7%, signaling that companies are not preparing for a recession. Stock markets have not pulled back to the low in 2022 either, implying that a recession is not right around the corner. Without a clear path forward, remaining globally diversified and focused on long-term results is important.

Avantis Monthly Field Guide 3/31/2023
Market Perspectives “When will the Fed Brake” Charles Schwab 2/17/2023
“Markets are Telling Investors Two Things at Once” Wall Street Journal 3/9/2023

The opinions expressed herein are those of Grand Wealth Management and are subject to change without notice. This material is not financial advice or an offer to sell any product. This does not constitute as investment, legal, or tax advice and should not be used as a substitute for the advice of a professional legal or tax advisor. Projections and other forward-looking statements regarding future financial performance of markets are only predictions and actual events or results may differ materially. Grand Wealth Management is an investment adviser registered with the U.S. Securities and Exchange Commission. Registration does not imply a certain level of skill or training. More information about Grand Wealth Management's investment advisory services can be found in its Form ADV Part 2.