September 2022 PDS Planning Market Commentary

With Labor Day passing, it brings pool season and the 2022 summer to an unofficial close.  However, it also means football season is here! College football dominated the sports world with games from Thursday through Monday this past weekend and the NFL will follow up with their Rams vs. Bills debut on Thursday.

Here in the Buckeye state, all eyes were on Saturday as two of the most storied programs in the country squared off in the Horseshoe. The Buckeyes came away with the win against the Fighting Irish, but as Coach Day said, “It was an ugly win.” Most expected the high-flying offense to shine, but in the end, it came down to the basics of blocking, tackling and running the ball. This can certainly be related to the investment world today. Private equity, hedge funds, complex alternatives, and cryptocurrencies dominate the headlines and lure investors into making purchases. However, investors often times find out that sticking to a few basic principles is a winning long-term formula.

  1. Low cost index funds – these may not have the allure of the private investments, but they significantly reduce the overall expenses and allow investors to participate in market-like returns. The extra expenses of some of these private investments can wear down the portfolio returns over time, similar to how the Ohio State rushing attack wore down Notre Dame’s defense in the second half.
  2. Rebalance – rather than buy and hold forever, we think it’s important to also rebalance portfolios over time. This can help keep portfolios within the intended amount of expected risk.
  3. Tax-loss harvest – Ben Franklin famously coined the, “In this world nothing can be certain, except death and taxes” line, but in years like 2022 where practically all assets classes are in the red, tax loss harvesting can be used to help reduce taxes.
  4. Diversification – we all know the “don’t put all of your eggs in one basket” phrase, but thank goodness Ohio State didn’t have to depend on their #1 wide receiver Smith-Njigba too much. He went down with an early injury, but it allowed others to step up, including the run game.  The defense also showed some significant strides from last season by holding the Irish scoreless in the second half.  Even though international stocks and bonds have lagged as of late, we never know when domestic stocks will face an injury (high inflation, Fed misstep, recession) and need bonds and other asset classes to provide the benefits of diversification.

Fall is a great time to remember the Greek philosopher Heraclitus’ quote “The only thing that is constant is change.”  Markets are focused on inflation and interest rates, but the headlines will eventually change.  Diversification and these other principals is the best defense against this inevitable change.

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