Before Friday’s inflation data release, headlines reported that investors were looking to the September Federal Open Market Committee (FOMC) meeting. This is because by September the central bank would have several months of economic data for 2022. Fed officials have been largely united on the need for half-point increases at the Fed’s June and July policy meetings. However, recent comments from Fed officials show the debate has shifted to what should happen next. News outlets pointed to a potential ‘Fed put’ at the September FOMC meeting – analogous to a put option which can be seen as a form of insurance. The resemblance here is that the Fed could potentially pause rate hikes in September as the rate hikes work their way through the financial plumbing. They can then assess the need for a more dovish or hawkish monetary policy. However, after last week’s higher-than-expected inflation data release, it is clear that investors are worried that the central bank is not doing enough to tame inflation – and perhaps that they will push the Fed to increase rates at a higher pace than they have signaled, which could drastically slow down or contract the economy.

Fear is a great motivator to do something. The increased sell-off investors saw over the past week has undoubtedly raises fears that your nest egg could be at risk. Fear is a great motivator to do something. Whether right or wrong, we want to take a moment to remind you that these are the times when you (the investor) need to go back to the basics and stay disciplined.

Stick to your financial plan. These turbulent times may be good or bad depending on your stage in life. For younger people who have not faced an inflationary environment, the thoughts of 1970s-era inflation may not be significant. That inflation number may not mean much besides it looking like a large number. Still, we have learned from those times that regardless of a potential downturn, cash is still not the best place to be. Historically, equity investments have far outpaced inflationary periods while cash was left far behind. For those that can stomach a downturn, this is an excellent time to get into names at a reasonable price.

Do you have near-term cash needs? Your financial plan should include an emergency fund, or you may have a portion of your assets set aside for a specific need a few years out. These funds will have a particular investment strategy that will work to meet that individual need. But if your entire portfolio needs any substantial changes made, keep in mind that those changes will likely change the time goals can be reached. Therefore, it is important that you first consult with your Wealth Manager so they can make sure that your investments align with the goals you want to achieve.

Note the difference between unrealized and realized losses. While it may not feel good to see your portfolio value swing so broadly, remember that selling a position turns an unrealized gain or loss to a realized gain or loss. And those moves are the ones that you can’t take back. So again, if your time horizon allows for it, it is better to invest more to take advantage of lower prices. But if you cannot stomach the volatility, it is best to stay away from looking at your portfolio daily. And if that judgment call has to be made, remember to first think of your financial plan and what it means to stray away from it.

Yes, the near term will likely feel bad. Yes, it could potentially last a while. But we are still making the most suitable decisions for your specific financial plan. We continue to see an environment significantly different from prior inflationary periods, mainly one that does not see a deep recession. It may take some time for interest rate hikes to affect the economy and tame inflation. What helps me is to think of my portfolio as a bit of a self-righting ship. It may rock from side to side and see its ups and downs, but it is not at risk of capsizing. Once you get used to those movements and realize that your ship is made with quality (companies), it is easier to see that your (portfolio) can endure the turbulent times. I am more at ease knowing that my portfolio will be ready to set out and handle many more times just like this.

– Jose Rendon

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