JB's newsletter to help you set and reach your financial goals

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March 2, 2022

Staying Disciplined Despite Uncertainty

     I hope this newsletter finds you all doing well.  My goal is to summarize in plain english what's happening with the stock market and the economy and direct your attention to things that will help you thrive in retirement. 

    Our hearts and prayers go out to the people of Ukraine.  The severity, timing and eventual resolution of the war are all uncertain, even to Mr. Putin himself.  The impact this conflict will have on the global economy and U.S. corporate earnings in particular are also uncertain.  On top of this, the U.S. is being impacted by the uncertainty of higher than average inflation. 

     The stock market despises uncertainty and the best prescription for investors is a disciplined investment strategy and a big dose of patience.  This is tough for many people because we are trained from a young age to do more and work harder to avoid setbacks and get the results we want.  Attempting to apply these principles to investing by attempting to time the market, side-stepping/hedging against losses, or speculating on short-term moves in individual stocks, are all certain to lower your returns in the long run.
     For some people, let's call them the Worriers, it is reassuring to hear that this too shall pass - which it will.  Our disciplined investment plan is in place and will work in the long-term.  We should not attempt to avoid volatility in the short-term because volatility is our friend in the long-term given the relationship between risk and return. Patience during temporary volatile swings in the market in the case of the Worrier simply means turning off the news and not logging in to view your account balances.

     For others, let's call them the Opportunists, it can help to have a general understanding of the stock market, the cyclical nature of the economy, and how geopolitical turmoil has impacted stocks in the past to give you confidence and keep you grounded during periods of market turbulence.  

    Whether you are a Worrier or Opportunists, I want to reiterate that Copley Investment Management's business model is to construct an investment strategy that aligns with each clients long-term investment objectives.  Discipline of adhering to this long-term strategy, without emotion, is the key to successful investing and is what Ron and I bring to the table.   

     For those that are Opportunists, i'd like to share some historical data about the current market risks that I hope will give you confidence to stick with our disciplined investment strategy, so here we go!

Stocks Market Returns During Geopolitical Turmoil    

     The chart below shows how far the S&P 500 index dipped and how many days it took to recover during previous crises:

       The total drawdowns of the S&P 500 in each of these incidents, especially in the last two decades, were relatively mild and short-lived.  Even after the Pearl Harbor Attack in 1941, the stock market bottomed just 143 days later and recovered less than a year later - even though WWII didn't end until 1945. 

Impact of $100 per barrel of oil on the Economy and Stocks

      This Russian attack is causing oil prices to inflate to $100+ per barrel.  The chart below shows that the last time oil prices were this high was from 2011 through the summer of 2014.  


      During this time, the chart above shows the S&P 500 index was up over 50%.  Higher oil prices do not necessarily mean economic recession or weak markets.

Higher Inflation

The 96-year average annual return for stocks, measured by the S&P 500 Index, is 10%. 
The 96-year average annual return for bonds, measured by the U.S. Investment Grade Bloomberg Aggregate Index, is 6%
The 96-year average rate at which goods and services increase each year, measured by the Consumer Price Index, is 3%.

     Currently, goods and services (measured by the Consumer Price Index - CPI) have increased around 7% from where they were a year earlier.  The table below shows annualized stock returns during different inflationary environments.

     Stocks have still been positive, but have not done as well when inflation is above 3% and when it is rising like is has over the past year.   

     Inflation - where it comes from and how it gets resolved - is a very complex issue.  The simple definition for inflation is too much money chasing too few goods.  Part of the problem is the supply chain disruption that resulted from the COVID shutdown. The bigger issue is the increased money supply caused by the government's quantitative easing (QE) program to prop up the economy during the pandemic. 

      The good news is that the virus seems to be petering out.  The Federal Reserve has a plan to end QE and will gradually raise interest rates which should help.  I have full faith in our capitalistic system which inherently incentivizes individuals and corporations to workout these imbalances to get inflation back to that 3% level.  Strong corporate and consumer balance sheets should give the economy more time it needs work through higher inflation while continuing to grow.  Another silver lining to the inflation story is wage growth.  It's not as high as current inflation, but it's stickier.  

     Given that our goal is funded contentment in and throughout retirement, it's prudent to grow our savings today to be prepared to buy goods and services that will cost more in the future when we're no longer employed.  Stocks, increasing at 10% per year on average, have easily outpaced average inflation.  It just requires a disciplined strategy and a big dose of patience in times like these!

What You Should Do Now
  • Get organized.  Spring is right around the corner so get some financial spring cleaning done before the warm weather hits.
    • Pull together all of your tax related documents.
    • Take inventory of all of your investment accounts (create those online logins if you haven't), consolidate accounts if possible, and let me review your overall investment allocation by sending me your most recent account statements
    • For those within 10 years from retirement age, go to and save a copy of your social security statement which estimates the amount you'll receive at different ages. 
    • Know how much income your household brings in and how much you're contributing towards your retirement each year.  It's sad but true - you're doing better than the majority of people if you know these numbers.

I hope each of you will send me an email or text with any questions or just to say hello.  I look forward to hearing from you.  Thank you.
Justin Burgess
Investment Advisor Representative
Text or Call: 910-612-4060

Thank you for trusting CIM with your investment and retirement planning needs.
For more information about our firm, please visit our website.

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