April 2022 was an absolute terrible month for almost every asset class that you can invest in. According to Morningstar only 3 asset classes were positive in the last 4 weeks (Consumer defensive stocks, systematic trend stocks and broad basket commodities).
In fact, five asset classes have lost more than 20% year-to-date:
Technology
Communications
Large Growth
Small Growth
Mid-Cap Growth
All of the above asset classes are now technically in a “bear” market (20% or more decline).
Fortunately, our Strategic models only have 2-6% in the growth categories and only 1-3% in our Tactical models. We started underweighting the growth asset classes last year.
And we will continue to do so until the conditions are more favorable for growth. This will not happen until inflation levels out and we no longer fear the rapid increase of rising prices.
April was also unique as bonds lost money due to rising interest rates. A long term bond will lose 10% of its value for every 1% rise in interest rates.
So, I fully expect the bond market to have extreme pressure this year.
The Fed is going to have to raise interest rates to try to tame inflation. And I am not sure that the markets have these interest rate increases priced in.
So, let me tell you the upside to a downward trending market.
If you have contributions going into your investments at least monthly, then you can benefit from the lower prices. By continuing to invest through downward cycles you will purchase more shares.
This is called “Dollar Cost Averaging”.
It’s extremely important to not stop investing when the markets look scary.
This is when you get the best prices!
In fact, we update your “Future Contribution” advice on a monthly basis, hoping to find the asset classes that are losing value each month.
In April, that was really easy to do.
Last month we had your future dollars in High Yield Bonds, Large & Small Growth categories. So, you were able to buy many more shares of each category than the month prior.
This month we are recommending that you invest in Non-Traditional Bonds, Broad Basket Commodities and Energy stocks.
You will need to login to your participant dashboard to see the exact recommendations. If your plan does not have any of the asset classes, we will let you know that it’s missing and the closest investment to use that you do have access to (proxy).
If you have any questions, do not hesitate to ask your financial adviser.
Month’s like April are tough to go through.
But DO NOT STOP investing!
This is when you set up your portfolio up for higher returns.
Stay confident my friends! I hope that you make it an awesome May!