When I think about these first three months of 2022, the word patience comes to mind. The recent two-year anniversary of Covid-19 hitting our shores reminds me of the havoc and disruption that the pandemic imposed on our lives, but more importantly how so many people overcame the hardships through a heavy dose of resilience and waiting for a better day.

We persevered, adapted, and appropriately managed our feelings about the experience. But now, just as we resume some normal aspects of life and possibly move to the “endemic” stage, we now might need to tap into that patience and strength once again.

This is not necessarily because I expect another dangerous Covid-19 strain (though that is always possible), but because I think we now may need to extend our patience to our personal finances and specifically our investments.

Surprisingly, these past few years of Covid-19 turned out to be quite positive from a financial and investment perspective for many of my clients and other mid-life professionals who I speak to. But as the news about Covid-19 seems to be dramatically improving, things in the financial world have recently moved in a different direction, as shown by a continuing rise in inflation and some turbulence in the financial markets.

The Russell 3000 Index, one of the broadest measures of the US stock market stumbled with a 4.86% decline during the first quarter. A bigger disappointment occurred in the usually more placid bond market as the Bloomberg US Aggregate Index, fared even worse, declining 6.1%.

Diversification across asset classes, usually a reliable investment strategy, clearly did not work. Most asset classes declined, except for commodities, precious metals and stocks tied to things like oil. The combination of the Russia/Ukraine conflict, surging inflation, and the US Federal Reserve Bank’s decision to begin a sustained rise in interest dates all conspired to create a very difficult backdrop.

Where do things go from here and what should you do about your portfolios? There are a broad range of potential outcomes that could play out. And those outcomes may greatly influence the types of investments that may perform well. I think investors should not attempt to make any bold predictions about the economy, geopolitics, or the types of investments that may do well given the uncertainties in this current moment. In other words, stay patient because this too shall pass, even though we do not know when!

That does not mean that you must “stand pat” and not make any changes to your portfolio. You should certainly review your allocations and review a variety of questions. Do you own too many technology stocks (especially unprofitable ones) and/or other investments vulnerable to high inflation?

Do you have too great an allocation to intermediate term and/or long-term bonds which may continue to struggle if inflation remains elevated? Do you have investments that have the potential to do well as interest rates move up? These are a few examples of the portfolio investment matters that you may want to review given the evolving backdrop.

But even if you decide to make portfolio changes, I urge all investors to remain diversified across a broad range of asset classes that are appropriate for their investment objectives, rather than making large allocations or bets on asset classes that may do well over the short-term or may do well in a particular economic scenario.

Such moves, if taken too far, could actually backfire and/or actually decrease the chances of moving toward your long-term investment objectives. Although it is true that diversification in many forms was not an effective strategy last quarter, this approach may remain very useful since the outcomes about inflation, interest rates, and their impact remain highly uncertain.

The financial markets almost instantaneously price in new information everyday in a rapidly changing economic and global landscape. Spreading your investments around many sectors may reduce your risk of being on the wrong side of unexpected developments.

Why do I make the recommendation for patience? After all, markets have shown resilience and bounced back in the past. Diversifying strategies have often rebounded very quickly. But this time might be different.

Although I am very optimistic that stock and bond prices may not decline together for a long time period, I also recognize that a move toward more normal inflation and market conditions may require an undetermined period of time than past market disruptions. It could test the patience of all of us as investors and tempt us to lose discipline at exactly the wrong moment.

There are many reasons to be optimistic and keep the faith. The economy remains quite strong and the outlook in the private sector suggests that corporate profits may continue to grow, which could support and even fuel an increase in stock prices.

Patience through these periods of market fluctuations may get us to the other side, just as it did through the Covid-19 pandemic. In that respect, we may want to follow the words of Mahatma Gandhi: “to lose patience is to lose the battle”.

As always, please contact my office if you have any questions, or if you need a complimentary review of your situation.

There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk. Asset allocation does not ensure a profit or protect against a loss. Investing involves risk, including possible loss of principal. Bond are subject to market and interest rate risk if sold prior to maturity. Bond values will decline if interest rates rise and bonds are subject to availability and change in price.