Investing for your retirement isn’t about getting rich quickly, but rather part of a long-term game plan. This issue of Wealth Management Updates provides insight of what the Markets are doing, what we are doing to react to them, and some education about how you can stay on track for your retirement plans.
The Trust Company Staff supporting Big Brothers Big Sisters "The Manhattan" event.
SECOND QUARTER MARKET UPDATE - IT'S HARD, BUT STAY THE COURSE!
By Mark Knackendoffel, President & CEO & Michael Carlisle, Vice President & Investment Committee Chair
2nd Quarter Market Performance – U.S. & Global Stocks & Fixed Income
The 2nd Quarter delivered significant declines in equity prices, especially in June, when the S&P 500 dropped -8.3%. The tech-heavy NASDAQ and Russell 2000 Small Company Indices dropped even more. The onslaught of economic, investment and political challenges also seem to have continued unabated.
The only good news has been the slowdown in the increase in U.S. Treasury rates, which actually declined slightly in June despite the Federal Reserve’s 75bp increase in the Fed Funds Rate. This helps validate that the Fed is behind in its rate increases relative to Treasury rates. The Fed Funds rate is currently 1.75%, but the 10-Year Treasury Rate is about 2.9%. So, once again, the bond market got it right, as it usually does.
The other “slightly” good news is that foreign stocks finally outperformed U.S. stocks by about 3% in the 2nd Quarter, which helps validate their more attractive valuations.
Are We Headed for a Recession? And Does That Matter?
A “Recession” is defined as “two consecutive quarters of declining U.S. Gross Domestic Product (GDP).” And GDP is defined as the “monetary value of all final goods and services generated within the U.S. over a certain period.” While the economy certainly has some head-winds, such as inflation and supply-chain disruption, demand is still strong for employees and wages, and also consumer consumption.
So, if we actually teeter into a recession, it will likely be short-lived and mild as measured by modest unemployment and minimal declines in the production and consumption of goods and services. Also, historically, recessionary times are excellent opportunities to invest in stocks, which have been hit by concerns regarding declining economic forecasts.
2nd Quarter Trust Company Portfolio Allocations & Performance
Although we have seen significant declines in portfolio valuations, our process of portfolio rebalancing across broadly-diversified asset classes has outperformed investment benchmarks . . . but just barely. Our Investment Committee remains committed to our processes and current asset allocations, for both our Passive and Core/Satellite Strategies. We also expect to rebalance again in the month of July to redeploy our slightly-higher cash allocations, which we accumulated during the 2nd Quarter.
So, we continue to invest using our time-tested process and commitment to patience, both with respect to the equity and fixed income markets. And we encourage you to do the same!
Q2 - 2022 MARKET INDEXES
WEALTH MANAGEMENT SPOTLIGHT: STAYING ON TRACK FOR YOUR RETIREMENT
Investing for your retirement isn’t about getting rich quickly, but rather part of a long-term game plan, which also takes a little knowledge and discipline. Here are few tips!
Compounding is Your Best Friend
It’s the “rolling snowball” effect. Put simply, compounding pays you earnings on your reinvested earnings. Like a snowball rolling downhill, the dual impact of compounding and time optimizes your retirement fund. The longer you leave your money working for you, the larger your total nest egg. Getting an early start is a powerful force, even if you start small.
If your contributions are pre-tax, as nearly all are, compounding becomes an even more powerful force. Not paying taxes currently on either your contributions or the compounded earnings helps your savings grow even faster (though you’ll owe taxes on eventual withdrawals from your account). The value of compounded tax-deferred dollars is the main reason you may want to fully fund all your tax-deferred retirement accounts, and also start as early as you can. With time on your side, you don’t need to aim for investment “home runs” to be successful.
Diversify Your Investments
Asset allocation is the process of spreading your retirement fund over several categories of investments, usually referred to as “asset classes.” A basic asset allocation would likely include stocks, bonds, and a money market fund. Asset classes may also include sub-categories, such as particular types of stocks or bonds.
Asset allocation is important for two reasons. First, your mix of asset classes is a huge factor — some say the biggest factor by far — in determining your overall portfolio performance. How you divide your accounts between stocks, bonds and cash can actually be more important than your choice of specific investments. Second, by dividing your portfolio among asset classes that don’t respond to market forces in the same way at the same time, you can help minimize the effects of market volatility while maximizing your long-term return. Ideally, if investments in one class are performing poorly, assets in another class often offset that performance and help stabilize your portfolio.
Remember that during any given period of market or economic turmoil, some asset categories and some individual investments historically have been less volatile than others. You can manage your risk to some extent by diversifying your holdings among these multiple asset classes, as well as different types of assets within each class. By taking steps that can help manage the amount of volatility, this helps you stay with your game plan over the long term.
Take Advantage of Dollar-Cost Averaging
One of the benefits of participating in a workplace savings plan is that you’re automatically using an investment strategy called dollar-cost averaging. This strategy enables you to acquire shares by investing a fixed dollar amount at regularly scheduled intervals over time. When prices are high, your periodic contributions buy fewer shares; when prices are low, that same dollar investment will buy more shares. A regular, fixed-dollar investment should result in a lower average price per share.
In addition, investing the same amount regularly automates your decision making, and helps take emotion out of investment decisions.
Stick to Your Strategy
Try to resist the impulse to change your investment strategy with every news headline or investing tip. Timing the market correctly is very difficult, even for professionals. Most investors fare better by having an investment game plan and then sticking to it.
That doesn’t mean you should simply forget about your investments altogether. At least once a year, you should review your portfolio, goals, and personal finances with your advisor to ensure that you remain on track, your circumstances haven’t changed, and you are taking advantage of all opportunities for your situation.
All investing involves risk, including the possible loss of principal, and there can be no assurance that any investment strategy will be successful. However, we do know that long-term investing provides more opportunity for success. During times of market volatility, we like to say “Stocks are on sale!” So this is a great time to start investing or adding to your investments. When markets begin to recover, which history tells us they will, you will have purchased more shares at a lower price – a great strategy for all long-term investors.
MEET OUR NEW STAFF
Associate Trust Officer & Wealth Advisor
Lee joined The Trust Company in June 2022 as an Associate Trust Officer and Wealth Advisor in the Manhattan office. His previous eight years were spent in public service, most recently serving as the Director of Government Affairs & Communications for the Kansas Insurance Department.
Originally from the small town of Oswego in Southeast Kansas, Lee landed in Manhattan, KS in 2009 when he transferred from Labette Community College to Kansas State University where he earned his bachelor’s degree in Political Science and later earned a graduate certificate in Personal Financial Planning. Lee also holds a master’s in Public Policy.
Lee and his wife, Bridget, a 5th grade teacher at Lee Elementary, have three children Amelia, William, and Charles. In his free time, Lee enjoys playing golf, taking his family to as many sporting events as possible, and dabbling in real estate.
When asked why he chose to make a professional career change and join The Trust Company, Lee responded, “I entered public service because of a strong desire to help others. I believe my work at The Trust Company will better allow me to do that by directly seeing the impact of helping folks develop plans and strategies to build their desired future.”
A June 2022 addition to The Trust Company, Tanna joined as an Account Administrator after a 25-year career in retail banking management. She is a graduate of Kansas State University, holding a Bachelor of Arts in Psychology with an emphasis in Industrial and Organizational Psychology.
Originally from Newton, Kansas, Tanna has called Manhattan home since 2004 where she has served the community at both Commerce and KS State Banks. Tanna and her husband, Brian, have three grown children and one grandson.
In her spare time, Tanna enjoys kayaking, hiking, and running. She has run 23 half marathons to date and she and Brian have together kayaked on 11 Kansas lakes in the past year. Their favorite hiking location is Rocky Mountain National Park. She enjoys being a fan to all K-State sports, especially football, as well as the KC Chiefs and KC Royals.
When asked to describe her perfect day at work, Tanna shared, “Ultimately, I love helping people. Whether it’s offering advice through a particularly difficult journey or a simple impactful compliment. If I can brighten someone’s day even in the smallest way, then that is a good day for me.”
Our advisors are passionate about helping people achieve financial peace of mind. Contact us today to get the conversation started.
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