Matt Somberg New Year Letter

January 21, 2022

Happy 2022 to you and your family. As we like to customarily start a new year, we share a few market-related thoughts regarding the year that was and the year ahead, and updates from around our office.

The economic look back and look forward

In 2021, the S&P 500 returned +28.7 percent and Dow Jones returned +20.9 percent. The Barclays Bond Aggregate returned -1.54 percent.

Keep in mind that six individual stocks (Apple, Amazon, Microsoft, Alphabet A and C and Tesla) comprise approximately 23 percent of the S&P 500. If you monitor the S&P’s behavior, these six companies have extraordinary influence on the results.

We would also note that 2021 was a strange year for several reasons: there was no bear market (defined as a 20 percent or more drop in the market). There were no market corrections (a 10 percent drop in the market). And only once in 2021 did the market move down 5 percent from its previous high. The market did a remarkable job of shrugging off endless daily headlines of bad news and continued to move higher.

The three “I’s”: The biggest market influences in 2021 were Infections, Interest Rates and Inflation.

Infections needs no explanation, with Covid-19’s profound effect on society and our economy. Our government (collectively the Trump and Biden administrations, Congress, the Federal Reserve, and state & local governments) provided historic support to our economy to keep it moving forward. In the midst of a crisis, it is difficult to get the governing perfect. In hindsight, our economy probably received more government financial support and spending than was necessary. The excess cash has kept consumers and business spending—and also increased our national debt.

Interest Rates: in our opinion, the government’s most profound effect on the economy was its continued use of historically low interest rates. Low rates provide a disincentive for keeping money in interest-bearing accounts like savings accounts or CDs. For example, a 10-year U.S. Government bond held to maturity will return approximately 1.6 percent. The absolute return is not necessarily bad; however when you account for inflation, the return is negative. The historically low rates have created an acronym called TINA which stands for There Is No Alternative. Investors turned off by the low rates of bonds and savings accounts have invested their savings into stocks and other riskier investments, a phenomenon that has helped move markets higher.

Inflation: You’ve noticed how expensive it seems everything has become. Filling up your car with gas and buying food at the supermarket has skyrocketed. Construction costs for home renovations and consumer goods (if they’re not delayed by the supply chain) have increased as well. The basic laws of economics state that prices will rise when demand increases, and supply stays the same or decreases. With a shutdown of much manufacturing, rising energy prices and an increase in consumer demand, inflation is here to stay for a while.

Bonds: Generally, investors own bonds in a portfolio for income and stability. At a most basic level, the income generated from bonds reflects the interest rate environment. As we are living at a time of historically low interest rates, so is the income from bonds historically low in many investor’s portfolios.  

Our advice to you is to be patient with the bond market. We expect the Federal Reserve to raise interest rates a few times in 2022. This in theory means that new bonds will be issued at slightly higher rates than they presently are. In the long term, that’s a positive as there will be more interest to be made in the long term--just not right now.

It’s easy to doubt whether 2022 will provide as good returns as 2021 did where the S&P returned 28.7 percent.  Covid is still impacting our economy and inflation is still playing a role. We will have mid-term elections in November. These should create some additional volatility and make it more difficult for companies to report better earnings in 2022 than they did in 2021. Our advice here: expect a bit more volatility in 2022. That doesn’t automatically mean that 2022 lacks the potential to improve upon 2021’s returns, but rather we will experience more bumps along the way.

This is a good part of the letter to remind our clients of a favorite quote from Fidelity’s Peter Lynch: “The market timer’s Hall of Fame is an empty room” – which reminds us that successfully timing the markets’ highs and lows is not something that can consistently be done, especially over the long term.

Around the (new!) office:

We moved to our new home on Hebron Avenue in June 2021. We are enjoying our brand-new facility and the office still has that “new office” smell to it! As you know, we envision the building as your one-stop financial hub for wealth management from us, as well as complementary tax and legal help from our future tenants in the building. We’ve had considerable interest from suitable firms and are currently vetting them very closely. Our hope is to bring firms in later this year. The process is taking a lot of time, for a very good reason. This building is not just our firm’s home, but a place where you’ve entrusted your financial well-being to us. And we want to be fully confident that any tenant in it is not just aligned in a holistic services sense, but that their culture, values and customer service are incredibly matched to ours.

Zoom vs. in-person meetings: You likely have already had meetings with your advisor via Zoom. As we move forward from Covid, our policy for meetings is that we will do whatever makes you comfortable. If you prefer a Zoom meeting, that works for us. If you’d like to come into our office to meet in person, that works for us, too. At the moment, the split is running 70% zoom and 30% in person—again, we are  happy to meet however you would like.

A deeper bench: Early in 2021 we were approached by an all-women wealth management firm from Farmington about the idea of working together. By the end of the year, we were pleased to have ClearGuidance Financial and their four team members become part of our firm in Glastonbury.  Our deep bench of advisors are caring for their clients as the Principals, Barbara Taylor and Terran Titus transition to retirement.

Our “alphabet soup” section: We continue to recruit and bring in incredibly talented people to our firm. Our firm now includes 29 team members, bringing us to:

  • 7 CFPs (CERTIFIED FINANCIAL PLANNER™ professionals)
  • 3 RICPs (Retirement Income Certified Professionals®)
  • 3 AIFs (Accredited Investment Fiduciary® Designees)
  • 3 CFAs (Chartered Financial Analysts®)

Community Give Back:  We are blessed to have a business that helps others. Charitably giving back is in the DNA of our firm and we felt fortunate that we could safely continue our efforts in 2021 for many of our favorite causes:

  • Employees and clients worked side by side at Foodshare in Bloomfield sorting food to be distributed to those who need it.
  • GSWM employees volunteered at House of Bread Soup Kitchen in Hartford to prepare and serve food to the homeless.
  • A small gathering of GSWM employees and friends golfed together for one day and raised over $85,000 for CT Children’s Medical Center.

Awards & assets: In terms of industry recognition, seven of our advisors were awarded the 5 Star Advisor award. My partner Josh Gottfried and I were both honored by Forbes magazine as Top Advisors1, and I was also recognized by Barron’s among their Top 100 Independent Advisors4 in the United States. Any recognition is truly a reflection of the entire team at our firm, regardless of the names on the front door. At this time our firm is managing over $1.6 billion of client money as of December 31, 2021. We thank you for the trust and confidence that you place in us to oversee your hard-earned savings.

General firm outlook:  It has been a challenging two years in this country. We know that so many of our clients have been impacted by the Covid crisis.  Some have suffered with personal loss and others who have remained healthy have had retirement travel plans or family celebrations delayed. On our end, we have carefully hired and added depth to our organization over the last two years so that we can deliver excellent service and great investment ideas to our clients. While the firm has grown with employees and client assets, we are always looking for better ways to serve you. We continue to investigate new ideas, new technologies and new ways to communicate that could be helpful to our clients or to their wealth management.

And so that brings 2022’s January letter to a close. We hope you have a lovely and safe winter season, wherever it leads you. We look forward to seeing you in person or on screen soon! Thank you for the ongoing trust and confidence that you have placed in our firm.  We are grateful for it every day.  

 

Sincerely,

Matthew Somberg, AIF®
Co-Founder & Partner
Accredited Investment Fiduciary ®

 

Certain sections of this commentary contain forward-looking statements that are based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. Past performance is not indicative of future results.  All indices are unmanaged and investors cannot invest directly into an index.
Bonds are subject to availability and market conditions; some have call features that may affect income. Bond prices and yields are inversely related: when the price goes up, the yield goes down, and vice versa. Market risk is a consideration if sold or redeemed prior to maturity.

1The 2021 ranking of the Forbes’ Best–in–State Wealth Advisors2 list was developed by SHOOK Research and is based on in–person and telephone due–diligence meetings to evaluate each advisor qualitatively and on a ranking algorithm that includes client retention, industry experience, review of compliance records, firm nominations, and quantitative criteria (including assets under management and revenue generated for their firms). Overall, approximately 32,725 advisors were considered, and 5,000 (approximately 15.3 percent of candidates) were recognized. The full methodology3 that Forbes developed in partnership with SHOOK Research is available at www.forbes.com.
2This recognition and the due–diligence process conducted are not indicative of the advisor's future performance. Your experience may vary. Winners are organized and ranked by state. Some states may have more advisors than others. You are encouraged to conduct your own research to determine if the advisor is right for you.

3Portfolio performance is not a criterion due to varying client objectives and lack of audited data. SHOOK does not receive a fee in exchange for rankings.
4To compile its annual list,* Barron’s, a leading financial publication, uses data provided by some of the nation’s most productive advisors. Barron’s takes a number of criteria into account for this state-by-state ranking, including assets under management; revenues generated by advisors for their firms; quality of practices, which includes examination of regulatory records; and philanthropic work. Overall, 4,000 advisors were considered, and 1,200 (30 percent of candidates) were recognized. The list includes both Registered Investment Advisers and Investment Adviser Representatives; some states may include more advisors than others, in proportion to state populations.