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Year-End Investment Insights

| December 21, 2021

Thank you for joining us. We’re glad you’re here. I’m Dave Hinde and this is Dave Richmond. We are advisors with heritage investments. We want to take a few minutes to take a look at 2021, take a look at the markets, and maybe some trends that we saw in 2021. Scott Hinde and Charles Hinde join us to look forward into 2022 and some to look for as far as trends going forward.

2021 Markets with Dave Richmond

Two-thousand twenty-one was another strong year in the stock market. As we’re sitting here today, it’s December 21, the S&P 500 is up over 25%, the European Index is up over 15%, bonds are off a little bit this year. But overall, it was a really good year to be invested. In addition to returns, another thing that we like to monitor is the volatility. 

The interesting thing about 2021 is that we only had six days where the market moved more than two percent in a day. Compare that to last year where we had 44 days that the market moved more than two percent in a day. So, we really saw a reduction in that type of volatility, which was nice.

Economic Themes of 2021 with Dave Hinde

We saw a couple things that I wanted to focus on today — something we kind of expected this year and something that was maybe unexpected. The thing that expected was COVID-19. We knew that was probably still going to be an issue going into 2021, and it has been. The good news is that people are getting vaccinated. Sixty-one percent of people in the U.S. have been vaccinated. Here closer to home in Missouri it’s about 52%. So, we’re seeing people get vaccinated. That’s helped with the severity of COVID-19 and hopefully keeping people from getting COVID-19. But it’s still an issue for our economy and looks like it probably will be also going into 2022.

The thing that was a little bit new was inflation. We really haven’t seen that much inflation over the last several years. But we saw the price of goods and services start to rise. The inflation rate rose, too — 6.8% in November. That’s the highest that we’ve seen since 1982. Inflation can be defined as the overall upward price movement of goods and services in an economy.

If you think about it, the rise in inflation does make sense. We’re having issues with trucking, with shipping. We’re having issues with getting goods to people. There’s a bit of a limit on the goods and services available to folks. That’s coupled with people actually having money right now. When you take into account people have that people and businesses have been making money, it’s been pretty successful, and then also the stimulus package, you have more money chasing fewer goods and that’s a recipe for inflation. We’re not exactly sure what all the consequences of that will be going forward. But Charles and Scott will be talking about the possibilities there as they’re looking forward into 2022.

Inflation and a Look at 2022 with Charles Hinde

Going forward, we think that inflation is likely to continue to be an issue for some time, but ultimately will resolve itself. When we think about the supply side of things, we look at the actual supply chains — we think they’re likely going to resolve themselves and work themselves out in the next year or so.

But on the demand side of things, we think that things are really strong there. We think that people still have a lot of a lot of cash, people are still making more money, and it’s incentivizing people to continue to spend money. That will likely continue to support inflation for some time going forward.

I think one of the really important things to look at is wage inflation — how much people are actually getting paid. It ends up being a really sticky area of inflation. When someone ends up getting paid more, when you give an individual a raise, it’s really hard to come back six months later and say, ‘I’d like that back.’ So, that ends up being a really stick area of inflation. It’s also a really big concern right now when you think about how many people are actually on the sidelines that aren’t willing to go back to the labor force. To get people back to the labor force and get them to participate, we’re going to likely need to increase their wages.

With that being said, though, those increased wages can tend to incentivize productivity increases within the corporate landscape. Those productivity increases can be the inflationary force over the long-term, so those two factors kind of work against each other at some level to kind of find a middle ground for what inflation is. 

The other thing to really keep in mind is that some level of inflation is important. That healthy growth in the economy, going at the right speed at the right time is healthy. Ultimately, we’re taking all these things into consideration when we’re putting together portfolios for our clients.

How Is Heritage Investments Positioning Portfolios Moving Into 2022?

When we think about inflation, one of the important things to think about is the bond market. So, when inflation rises the Federal Reserve will likely increase interest rates, help control that inflation. Increasing interest rates has a negative effect on bond prices. But what we see historically is that with increases in interest rates if they’re slow and steady, bonds can still perform really well. They still play a really important role in portfolios. They can provide downtime protection; they can provide diversification; and they can provide a modest income. So, we still think there’s a really important for bonds in your portfolios.

On the stock side of things, we think that it’s important to stay invested in stocks. Stocks historically have been one of the only asset classes that can outperform inflation over the long-term. So, we think it’s really important to stay invested in stocks, even when there’s likely some volatility here going forward.

The other thing we’re thinking about, too, as far as inflation, is the idea of incorporating other asset classes. Asset classes like real estate or hedged equities that might have equity-like returns with some downtime protection and kind of diversify ourselves, our portfolio against the potential for inflation in the future.

So, there are a lot of different things we’re thinking about, that we’re trying to put together to ultimately produce a really high outcome for our clients.

Markets Going Forward and Final Thoughts with Scott Hinde

You mentioned a couple headwinds — interest rates, inflation, and obviously we still have COVID-19 as an issue as we move into 2022. There’re some headwinds, but we think we can stay invested, have a well-diversified portfolio and try to mitigate those risks as much as possible as we move into next year. Long-term, we’re very optimistic, so we feel very comfortable moving into 2022.

For those of you who are clients, we’ll likely be reaching out to you soon for our annual reviews. We’re excited to hopefully see you in person this year. And for those of you who aren’t clients, who are taking look at your financial situation today and saying, ‘Am I ready for the future? Is my portfolio ready? Is my financial situation ready for the future?’ — we would love to sit down and have a conversation with you, to understand where you’re at today, where you want to go. We’ll help you chart a path to get you there. So, if you’re looking forward to doing that for you and for your family, please reach out to us, give us a call. We’d love to engage with you. Have a great holidays, and we hope to see you soon.