It seems like only a moment ago that we first heard the word COVID-19. While we were struggling to adjust to all of the ways that life changed in 2020 and 2021, a year and a half passed in the blink of an eye. A new administration in Washington, variants and vaccines, and a spike in prices are among the few things that stick out from the general, blurry sense of volatility fatigue and anxiety about what the next hammer to fall would be.
Puzzling to some, this uneasy, wearying time has been the backdrop for soaring market returns. During our client meetings this fall, Lindsey, Frank and Tom reviewed some of the strongest twelve-month returns that we have ever seen. Over the most extreme uncertainty and media catastrophism, we witnessed the triumph of faith, patience, and discipline united with carefully considered strategy. Strong portfolio returns are the inevitable result of such a triumph.
2021 was a story of resilience, adaptability, and optimism. This message is about those themes, as well as the optimistic perspective that we have on the coming year as informed by what we have just experienced together.
Principles
Our focus is on helping our clients to align meaningful planning with their deepest values, and in so doing, maximize their Return On Life. We believe that the key to lifetime success in investing is to act continuously on a deliberate plan. Likewise, we believe poor returns, and even plan failure, proceed from
- Focus shifting to something else besides the Plan, such as news headlines or short-term fluctuations, and
- reacting to (let alone trying to anticipate) current economic/market events.
Just in the last four decades or so, the average annual price decline from a peak to a trough in the S&P 500 exceeded 14%. One year in five, the decline has averaged at least twice that. And on two occasions (in 2000-02 and 2007-09), the Index has actually halved. Yet the S&P 500 came into 1980 at 106, and went out of 2021 at 4766.18; over those 42 years, its average annual compound rate of total return (that is, with dividends reinvested) was more than 12%.i
These data underscore our conviction that the essential challenge to long-term successful equity investing is neither intellectual nor financial, but temperamental: it is how one reacts, or chooses not to react, to market declines. We have always argued that successful portfolios can occur for patient and disciplined investors, and our clients proved us correct in 2021.
We believe that an investor that can remain patient and disciplined while others are not has a powerful advantage, and we work to ensure that our clients are mentally prepared so that they can possess this advantage for themselves and their loved ones.
2021 In Review
It would seem to be counterproductive to look at these past 12 months in isolation. They were, rather, the second act of a drama that began early in 2020, the precipitant of which was the greatest global public health crisis in a hundred years. The world elected to respond to the onset of the pandemic essentially by shutting down the global economy. The United States experienced the fastest economic recession ever, and a one-third decline in the S&P 500 in just 33 days.
Congress and the Federal Reserve responded all but immediately with a wave of fiscal and monetary stimulus which was and remains without historical precedent. This point cannot be overstressed: we are in the midst of a fiscal and particularly a monetary experiment which has no direct antecedents. This renders all economic forecasting—and all investment policy based on such forecasts— hugely speculative. We infer from this that if there were ever a time to just put our heads down and work our investment and financial plan—ignoring the noise—this is surely it.
If 2020 was the year that the world stopped, 2021 was the year that the world started to turn again. This is regardless of how reacquainted we become with the Greek alphabet because of the variant parade, or persistent supply chain issues, or even inflation. This perspective is the key to a coherent view of 2022.
In general, we think it most likely that in the coming year
- The lethality of the virus continues to wane;
- The world economy continues to reopen;
- Corporate earnings continue to advance;
- The Federal Reserve begins draining excess liquidity from the banking system, with some resultant increase in interest rates;
- Inflation subsides somewhat;
Please don't mistake this for a forecast. Although these outcomes appear to us more likely than not, we are fully prepared to be wrong on any or all of the above points. If and when this turns out to be the case, our recommendations to you and planning will be unaffected, since our investment approach is designed with the expectation that the future is fundamentally surprising.
2019 and 2020 have undoubtedly been the two most shocking and terrifying years for investors since the Global Financial Crisis of 2008-09—first the outbreak of the pandemic, next the bitterly partisan election, then the pandemic's second major wave, and most recently a 40-year inflation spike. You might not be human if you haven't experienced serious volatility fatigue or jumpiness at some point. We certainly have.
But like that earlier episode, what came to matter most was not what the economy or the markets did, but what the investor did. If the investor fled the equity market during either crisis, his or her investment results seem unlikely ever to have recovered. If on the other hand the investor kept acting on a long-term plan rather than reacting to current events, positive outcomes followed. It was ever thus, and we expect it always will be.
Looking Ahead
Frank has been working towards the CLU®, or Chartered Life Underwriter designation with The American College of Financial Planning. This will demonstrate in-depth knowledge of life insurance law, and will enhance Acadium's ability to plan and support complex estate planning and business succession needs. Frank expects to complete the coursework, sit for the exam, and add the credentials later this year.
Unfortunately for Acadium, we will be losing our associate Heather Gibson. Heather joined us in April of 2020 and was an extraordinary Client Services Coordinator for our team. Heather's husband Todd has accepted an important and exciting promotion in his career that may involve international travel and time abroad for the entire Gibson Family.
Nearly all of our clients came to know and appreciate Heather over the past two years. It was a pleasure to work with Heather, and the Acadium Team thanks Heather for her hard work and innumerable contributions. We wish Heather and Todd, and their children Olivia and Zachary, an amazing time and wonderful experiences with this next chapter in their lives.
Dawna DuClau will continue as our Financial Planning Qualified Professional and Client Services Coordinator. We are considering several well-qualified candidates for clerical responsibilities, and we are optimistic that we will be introducing another extraordinary teammate to our clients soon.
As we wrote in our 2021 annual letter, our approach has been and remains to capture the resilience and adaptability of capitalism, companies, and consumers. Diversification and discipline help us to benefit from unexpected good luck while reducing our experience from bad luck.
We believe that challenges often represent opportunities in disguise. This year, we will continue to try to capture present and future opportunities in this way, and to make our investment strategies ever more efficient in this regard.
Perhaps most importantly, the past two years have crystallized our perspectives on values-driven financial life planning. We have all been given the opportunity to consider what is really important in our lives, and we have re-learned that comprehensive planning can be key to accomplishing those things that really matter.
Tom, Frank, and Lindsey welcome your comments, questions and concerns. We can't predict, but we can plan, and we are here for you. As always, thank you for being our clients. It is a privilege to serve you.
Frank Hujsa, CFP®, CLU®
Partner, Acadium Financial Partners
27499 Riverview Center Blvd, Suite 108
Bonita Springs, FL 34134
Lindsey Hansen, CFP®
Partner, Acadium Financial Partners
3601 PGA Blvd, Suite 301
Palm Beach Gardens, FL 33410
Thomas Udovich, CFP®
Partner, Acadium Financial Partners
3601 PGA Blvd, Suite 301
Palm Beach Gardens, FL 33410
Any opinions are those of Frank Hujsa, Lindsey Hansen, and Thomas Udovich are not necessarily those of Raymond James. Securities offered through Raymond James Financial Services, Inc. member FINRA/SIPC. Acadium Financial Partners is not a registered broker/dealer and is independent of Raymond James Financial Services. Investment Advisory Services offered through Raymond James Financial Services Advisors, Inc.
Investing involves risk and you may incur a profit or loss regardless of strategy selected, including diversification and asset allocation. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor's results will vary. Past performance does not guarantee future results.
i Source: Nick Murray, used with permission