By: Jeff Anderson
|Close||Weekly return||YTD return|
|US Treasury 10yr Yield||3.813%|
Source: Wall St. Journal
It was another down week for markets. September has been, historically, one the worst months, if not the worst month, for stocks, and the last week, in particular, being the worst week of the year. When you couple that with rising mortgage rates, Hurricane Ian, rising bond yields, you have a recipe for rough waters. On top of that, unemployment claims came in lower than forecast, signaling to investors that the Fed will keep its foot pressed to the floor on its rate hike pedal.
As we like to preach to our clients, it’s just math. When markets are expensive, future expected returns are lower. When markets correct, the math flips. Future expected returns increase. Over the medium to long term that has always been the case.
Hurricane Ian and Your Investments:
In no way are we minimizing the devastation that Hurricane Ian caused in Florida, but this photo is probably what the stock market feels like.
Hurricane Ian made landfall on the west coast of Florida this week causing massive damage to the state. The storm surge and ensuing rainfall from Ian as it made its way across central Florida caused upwards of $40 billion in insured losses according to early estimates reported in the Wall St. Journal. It could shave off 0.3 percentage points off the country’s Q3 economic growth. As someone who lived in Florida, the dearth of major hurricanes over the past decade had really created a lot of complacency amongst residents. Too many false alarms. The boy who cried wolf syndrome.
In reality, the long-term economic effects are really not that much. Everything gets rebuilt, newer and (hopefully) better. This is not intended to downplay the emotional damage inflicted on those affected Floridians. Natural disasters leave indelible marks on the psyche.
All that aside, there are important investing lessons that can be learned from Hurricane Ian. The two that come to mind are preparedness and diversification. Many residents weren’t equipped to weather the storm. They didn’t have proper storm shutters, or back-up power sources and even decided to stay put, not understanding the impending risks barreling across the Gulf of Mexico. What about diversification? I know firsthand of someone who had a home in Ft Myers along with three investment properties that he relied on as income in retirement. All in the same location. Parts, if not all, of those properties are scattered across the state in various forms of sticks and twisted metal. Prime residence gone. Income gone. Do you see the parallels? In investing, you need to prepare for market crashes like you’d prepare for natural disasters that will happen when you live at sea level along the coast. You need cash on a monthly from your investment portfolio? Make sure your withdrawal rate is conservative. Make sure you have shorter-term, safer investments that you can draw from over the next year or two. Lastly, know that owning a bunch of investments doesn’t mean you hare diversified. Make sure those investments are providing you with exposures to various risks and offer different return characteristics, so you don’t end up losing a significant portion of your nest egg because it was all concentrated in the wrong asset class.
Advisory services are offered through Presidio Capital Management LLC, Registered Investment Advisers. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. No advice may be rendered by Presidio Capital Management, LLC unless a client service agreement is in place.