The North Bay Business Journal published a special report on Wealth Management in its August 29th issue, which focused on understanding the current market environment. Check out the answers from our founder and managing partner, James E. Demmert (JED).
Inflation is here and robust. What are you advising your clients? What actions can they take to protect their investments?
JED: We would recommend that investors be proactive with their investments. Hope is not a strategy in the current volatile environment.
For our clients, we began de-risking their portfolios towards the end of the first quarter by decreasing equity exposure and rotating to defensive, value-oriented stocks. We utilize stop losses for our clients, so the process of lowering risk happened very naturally as parts of the market began to decline more than normal.
Taking a more proactive, conservative approach not only prevents your assets from fully riding the market down, but also gives you dry powder to put back to work once the market begins to rebound. The silver lining of any bear market is that fantastic opportunities arise once the market fully capitulates. We are excited to see this market recover and would recommend that investors create a plan for when it happens as we have for our clients.
The stock market is, at best, erratic. Clients no doubt are worried about their 401ks. Besides “stay the course,” what are you telling them to do?
JED: We are currently encouraging all our clients to create or update their financial plans with one of our Certified Financial Planners.
The financial plans that we tailor for our clients are extremely comprehensive, taking into account all parts of their financial lives. It is critical to have a financial plan in place to ensure that your spending habits and plans are appropriate. These financial plans also help our Portfolio Managers craft portfolios that align with long-term risk and return goals.
Our clients feel confident about the durability of their financial plans because the modeling process already considers market volatility. Even in extremely complex and volatile times like today, clients feel assured that their financial ambitions are still within reach because of these plans.
Real estate is cooling, at least for now. Do you see it becoming more of a buyer’s market? What investment opportunities does this shift present?
JED: The residential and commercial real estate markets are still quite resilient when you look at broad market price indices such as the FHFA US House and FOF Commercial Real Estate Price Indices.
Of course, these are very high-level indicators and should be taken with a grain of salt. There are parts of the real estate market that certainly are cooling down while others remain hot. The parts of the market with elevated prices should certainly start to decline as we are seeing that new home and existing home sales are beginning to decline dramatically.
In addition, increasing mortgage rates will continue to squeeze real estate purchasers, or investors, as borrowing becomes more expensive. For those with adequate liquidity available, and those that can absorb larger borrowing costs, the trend of the real estate market does present an opportunity.
Given the unique nature of each real estate investment, the size of the opportunity will vary based on the investor's research, plan, and ability to execute.
The Fed has acted to address inflation by pushing up interest rates, hoping to cool the economy without letting it fall into recession. Is that the correct approach? Why or why not?
JED: This has historically been the correct approach, but time will tell if it can successfully tame inflation this time around.
If we continue to see elevated inflation readings and faster than expected interest rate hikes, then pushing the economy into a recession may be the Fed’s only option.
While a recession is not great for consumers, or businesses, it is better than continuing to see inflation at the levels we are currently experiencing.
Long-term, sustained inflation can lead to serious societal problems and civil unrest, but we have faith that the Fed will continue to take a tough stance against inflation until it is lowered close to its 2% target. We are already witnessing a much more aggressive response here in America than in other developed parts of the world experiencing inflation. As supply chain difficulties naturally improve over time, this will also help inflation and ease the Fed’s burden.
Click here to read the North Bay Business Journal full article.
