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Quarterly Client Update Q3 2021

As summer faded into fall in mid-September, temperatures began to fall and so did the US stock market. While the US stock market was down just 0.10% during the 3rd quarter, it was the first quarterly loss since Q1 20201.

Five straight quarters of positive returns is not all that rare but the lack of volatility this year had been unusual. It wasn’t until the last day of the quarter that the S&P 500 had pulled back by at least 5% from the all-time high. It was the first time that had happened in 2021. The market normally drops 5% about 3 times per year (with some years hitting double digits!)2

Going more than a year with significant returns and below normal volatility can make it feel worse when the regular volatility eventually returns. This is when we must remember that it is necessary to have such swings in the market if we are going to have attractive returns. Without these swings, there would be no risk to investing and without risk, returns would be very low (3-month US Treasury bills are usually considered a risk-free investment, the current annual yield is 0.04%3).

You may remember that last quarter we talked about the “emotionally difficult” path to investing is most likely to have long-term success. The path involved a long-term investment policy suited for your circumstances and which you’re committed to and then holding on. This rather small pull back is a good test of holding on. Perhaps you are finding it difficult to hold on as you hear about the debt ceiling, investing at (or near) all-time highs, the overdue and inevitable market correction, tax law changes or the trillions of dollars of proposed government spending. Our encouragement to you is that, unless something in your life has changed, we believe your portfolio is well-suited for your situation. We continue to monitor and rebalance your portfolio to keep you invested according to those targets and we truly don’t believe there is a better approach out there. Each of the concerns we just mentioned have been an issue in some shape or form at some point during the past 10 years. Globally diversified stocks had annualized returns of 12.50% during those 10 years4. While there is no guarantee those sorts of returns will continue, investors who held on were rewarded. Future returns are not able to be predicted so we advise that you focus on what you can control: keeping a diversified portfolio and discussing financial planning topics that are important to you. 

The focus this quarter will be on tax reviews and year-end planning. If we have any questions or strategies that might be beneficial for you to consider, we will be in touch. As always, please reach out to us with any concerns or information that would be helpful.  

1As measured by the Russell 3000 index, Source: Dimensional Fund Advisors Quarterly Market Review Q3 2021

2Source: LPL Research, Ned Davis Research 9/30/21

3Source: https://ycharts.com/indicators/3_month_t_bill

4Source: Dimensional Fund Advisors Quarterly Market Review Q3 2021

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful. 

All investing is subject to risk, including the possible loss of the money you invest. Diversification does not ensure a profit or protect against a loss.