As the market downturn at beginning of year continued through February, we began treating it like all other corrections. First, it’s important to remember that as abnormal as this may feel, it is actually very common and an important component of how our markets work. We had gone two years without such and now is time.
Each correction has its own characteristics and this one is quite the character. Should we blame inflation, rising interest rates, geopolitical concerns and conflict, supply-chain issues or the whole darn lot? My view is that it doesn’t really matter. It was time for markets to reset and look forward. For the portfolios we manage, I utilize many research teams. These are the ones I’m favoring at present:

  • LPL Financial – for general market conditions and tax strategies
  • Dimensional Fund Advisors – quantitative research and allocation
  • Goldman Sachs & BlackRock – for equity and fixed income insights
  • CFRA & O’Shares – when I’m curious about specific stock holdings

Many of my existing clients are invested in DFA funds because of their approach. Jeff Sommer of the New York Times summed it up well in the Sunday, March 6th edition when he wrote “Dimensional eschews market timing and generally recommends long-term diversified buy-and-hold investing precisely because it is so difficult to accurately forecast market returns.” DFA currently oversees $679 Billion and has benefited from the wisdom of Eugene F. Fama who was awarded the Nobel prize in Economics in 2013 for his work on the theory of “Efficient Markets”. Savina Rizova is the Global Head of Research at DFA and was recently named as one of the 100 Most Influential Women in U.S. Finance by Barron’s on March 7th, 2022. These are only two of the fine minds on your team.

Efficient Market Theory states that security share prices reflect all information and therefore trade at their fair market value on exchanges.

Our clients will continue to be well-served by the continued partnership with DFA as we navigate the current market volatility.

Other things that greatly assist a portfolio in periods like this are:

  • Always maintaining emergency cash reserves
  • Reinvesting dividends and gains
  • Continue systematic purchases
  • Reduce income withdrawals where possible
  • Understand the pricing power many companies have & maintaining ownership of them in inflationary times

Although the VIX (volatility index/measurement) is frequently cited in the media it serves no real purpose in the recommendations we make. In fact, very little of what is reported on the daily and nightly news does have any direct correlation to your portfolio.
Goldman Sachs Asset Management shared their views on the municipal bond market this week (many of our income seeking clients hold muni bonds) with:
“The municipal complex reflects one asset class where investors may realize higher yields without having to compromise a lower correlation to risk assets. With above-potential US growth, improving state revenues, and still healthy reserves, we believe looking beyond corporate credit may prove additive to a portfolio’s fixed income allocation.” ~Bloomberg & Goldman Sachs
To put it into perspective, LPL research looked at how long it took for the S&P 500 to recover from a variety of geopolitical events at trough. The average was 43 days.
Keeping all this in mind, I welcome you all to contact me with any further questions, concerns, to schedule a review or with any tax-related questions.

Your Fiduciary,
Susan R. Linkous / The Linkous Group, Ltd.
A Registered Investment Advisor

*Material from third-parties, including Dimensional Fund Advisors (DFA), shared here should not be construed as a recommendation of that firm’s products or services. They are for educational purposes only.