A set of difficult challenges faced the markets during the first quarter, leading to negative performance for both stocks and bonds.
The headlines have certainly rattled investors — inflation reaching levels not seen in decades, Russia invading Ukraine, and the Federal Reserve starting to increase interest rates.
U.S. stocks declined, with the S&P 500 losing 4.9%, and the tech-heavy Nasdaq dropping 9.1%. International stocks, represented by the MSCI World ex-USA Index, were down 4.8%. With interest rates rising sharply, bond prices fell, and the U.S. bond market (the Bloomberg U.S. Aggregate Bond Index) lost 6%.
With these strong headwinds facing investors, here’s what you need to know:
• We’ve been through many periods of geopolitical risk and conflict. Each time, the most effective strategy is simply to stay diversified and remain invested. If your goals haven’t changed, your investment approach should not either.
• History shows that stocks tend to outpace inflation over the long term — a valuable reminder for investors concerned that today’s rising prices will make it harder to reach their financial goals.
• While bond prices are down for the quarter, in the long run higher yields are good news for investors. Bond funds should gain back those losses over time by reinvesting in new bonds offering higher rates.
We don't know how the markets will react in the short-run as current events unfold. The good news — we do know that sticking with a proven, effective strategy over the long run beats constantly trying to guess what will work over the next quarter or so.
As always, we are here to answer any questions.
David Rappaport, CFP®