December 2021 Market Update

Have you ever strained a muscle, twisted an ankle, or had some type of injury? If you have experienced this, you may have also experienced how interconnected your body is. I learned that when you have pain or injury in one part of the body, it can impact an entirely different area. When compensating for one injury, I also found that we often overcompensate and injure other parts of our bodies. I remember spraining my ankle, and while trying to get off the basketball court on one foot, I ended up twisting the other one as well!

The economy feels a little like that as we head towards the end of an eventful year of investing. One strain leads to another and then another. First, a pandemic with all the supply chain issues that went along with it.  Next, a great deal of worldwide money printing, which caused the current inflation we are seeing. Then, another worldwide supply chain issue, and now a new strain of COVID has begun. Now we can add some extra infrastructure spending that is just starting to add money to the system while the Fed warns of tapering and increased interest rates toward the end of next year. It would even seem that the consumer may be tapering a bit as well, given the Black Friday and Cyber Monday sales numbers.

In this month’s update, we will cover:

• Dealing with volatility in a low-interest rate world.

• What do taxes have to do with it?

• Is it too late to invest in innovation?

I try to keep these updates as non-technical as possible, but this gets just a little technical. The easiest way to explain this is the bonds or fixed income prices rise as interest rates move lower. Given how low interest rates are now, bond prices have increased significantly over the past several years. Further, the lower interest rates are, the more volatile long-term fixed income bonds will be. All these things have happened slowly over the past decade or two, rendering, in my opinion, the traditional 60% equity 40% bond portfolios outdated at best when used as a risk mitigation tool. Cash holdings could be just as bad or worse, handing investors a loss in purchasing power in the current market environment.

With these outdated methods of risk mitigation still pervading the “common wisdom” of the market, what is the prudent investor to do in order to cushion what could be a volatile year in 2022?

Other options include structured products that have their own set of risks and must be carefully matched to the individual investor. For more sophisticated investors, the use of direct options on securities may be another answer. Others may turn to well-known commodities to mitigate risk. However, there are inherent risks and unique tax consequences when dealing with commodities, collectibles, art, and other nontraditional alternative investments. Real Estate has been a hot topic for investors, but this sector is not for the faint of heart either.

As unsatisfying as this answer may be, the truth is that risk mitigation requires both an in-depth knowledge of the instruments being used and an in-depth understanding of the needs of the individual investor.

As always, we stress this is not investment advice. Please seek the advice of someone with the right experience to help you mitigate your specific level of risk.

What do taxes have to do with it?

Tina Turner recorded “What’s Love Got To Do With It” in May of 1984. These days we are often asked what taxes have to do with investing. The answer is that the more gains you can keep in your bank account and not in Uncle Sam’s, the better. While we do not claim to have a crystal ball that gazes into future politics, you can often make prudent moves without knowing the future. We stress that while taxes are a thing, they are not the only thing to consider. Before making any investment decisions based on potential taxes, consult an advisor with the right experience to help you determine what is right for you.

The Biden tax plans have, by and large, been thwarted by the Republicans; however, the threat of higher taxes for investors and corporations remains. The average growth rate of the S&P500 remains at a very healthy 40% which makes for a big target that could help tackle all this deficit spending. That earnings growth rate is one reason we are still long-term bullish on the markets. Some of you have taken some extra gains this year and put those funds back to work elsewhere just in case the higher capital gains tax does make its way through for 2022, and there is still a few weeks left to do that if it fits with your overall strategy.

Our view is that the Democrats will eventually get some form of tax increase through but nowhere near what they were initially hoping for. The silent inflation tax is already hitting consumers hard, with Black Friday and Cyber Monday sales disappointing retailers and politicians alike. We believe this will make it even harder to get a direct-to-consumer tax increase pushed through. We think it is more likely that the changes will be more subtle and directed at corporations, taking a little more time to trickle down to the consumer.

Is it too late to invest in innovation?

The past thirty years and an extensive study of economic history have taught me that it is never too late to invest in innovation, especially in the United States and several other countries that reward innovative behavior. We believe we remain in the early stages of another major boom of innovation.

Dating back to the earliest civilizations when someone figured out that they could domesticate animals and plant crops systematically, innovation has led to increased quality of life, longevity, and productivity. While there have been glitches along the way, innovation has been a good thing for economies. While those innovations certainly enriched their creators, they also contributed greatly to our society as a whole.

During the 1920s, the introduction of affordable personal vehicles, and the radio were said to have shrunk the world. (Remember, these years were called the “roaring 20’s for a reason.) More recently, the advent of the personal computer, the cell phone, and the internet are a few innovations that have effectively shrunk our world in terms of time and space. Now we are seeing more innovations coming together than we have ever seen in history, and they are just beginning to impact our everyday life. Perhaps we will experience another “Roaring 20’s.”

There are ways to participate prudently in the innovation space, but those methods vary greatly based on your personal goals and risk parameters, so please reach out for a one-on-one conversation about the best way for you, in particular, to do so.

Define your outcome and allow a skillful artisan to help you create it for you.

Please remember that this note is our opinion from a broad perspective and is not personal investment advice.

Contact us to book John to speak at your next event.

For individual advice and more information about some of the changes happening in the market and economy, schedule a no-cost call directly with John Browning by CLICKING HERE.

We are also happy to provide you with a copy of our Amazon best-selling book Build a Life, Not a Portfolio; A Guide to Your Financial Future Based on Your Values.

Additionally, you can tune into our weekly Building Your Life Podcast and search for topics of interest.

We continue to have one goal; to help you build a life you love supported by a portfolio that fits your specific needs.

Talk soon,

John

Phone: (312) 372-5000

Email: info@advocacyinvesting.com

John Browning, MBA and CSA®

* Securities and investment advisory services offered through Guardian Rock Wealth™ Investment Management Inc. (GRWIM) member FINRA/SIPC. GRWIM is a wholly-owned subsidiary of Guardian Rock™ LLC. Neither of these entities provides tax or legal advice.

Nothing in this communication should be construed as personal investment advice and past performance is no guarantee of future results. Investing is not appropriate for everyone. There is a risk of loss associated with investing in the markets. No representation or implication is being made that using any methodology or system will generate profits or ensure freedom from losses. Please remember that investing carries risk. Guardian Rock Wealth™ LLC and its affiliates are fiduciary investment advisors. Please consult with us or another experienced, qualified investment advisor before making any investment decisions and/or trying to implement any of the strategies and tactics we may discuss in any of our publications.