Dear Client,

The change of seasons is a time to look forward and reflect on the past. The seasonal cycle is a good analogy for the broader cycles that play out in our lives and the economy. A critical component of our BEST Life planning and investment process is doing everything we can to prepare you for the inevitable uncertainties we experience, whether they be economic cycles, investment markets or life’s obstacles. There is no doubt the past year has been difficult for us all. As much as we anticipate and prepare for uncertain times like this, we know it is never easy. I would like to acknowledge and commend you for your amazing trust, patience, and discipline over the past year. 


Last year was a particularly challenging year for investors as we experienced severe market volatility driven by worries about COVID-19, Ukraine war, and the most central story of all: inflation and interest rates. As the Federal Reserve raised interest rates aggressively to tame inflation, both stocks and bonds fell in tandem and in an unprecedented way. Stocks, as represented by the S&P 500 index, fell approximately 18%, its worst year since 2008 and the sixth worst on record1. Meanwhile, bonds, as represented by the Bloomberg US Aggregate index, had the worst year since the inception of the index in 1976, falling by approximately 13%2. The decline of both stocks and bonds, and many other areas of investment reduced the diversifying effects of even the most well-designed investment portfolios. 


So far in 2023, there have been some positive signs that inflation is improving. However, this news has been offset by the recent stresses on the banking system driven by rapid increases in interest rates and poor bank stewardship. Over the last two weeks, the FDIC assumed control of two regional banks (Silicon Valley Bank and Signature Bank) and the second-largest Swiss bank experienced its own funding crisis. To increase confidence in the banking system and help prevent further fallout with other regional banks, US regulators provided banks with access to capital and guaranteed all the deposits of these two banks beyond the $250,000 FDIC insured level. 


A banking crisis is not the preferred path to lowering inflation, but this episode did show that regulators and industry leaders learned many lessons from the Global Financial Crisis. In my view, those lessons made this crisis much less severe and recent efforts will help to stabilize the financial system. For better or worse, this is the messy, scary, and sometimes painful process of adding resilience to our financial system. 


Despite all the bad news, there is a positive aspect to higher interest rates. The higher rate environment has finally provided attractive opportunities for higher yields within the more conservative area of fixed income (like bonds). In some cases, bond yields have more than doubled from where they were just a year or two ago. This should provide higher return potential for our clients as investment managers seek out opportunities to reposition the more conservative areas of our portfolios to generate higher yields over intermediate and longer terms. 


It is growing more likely that we will experience a mild to moderate recession over the next 6 to 12 months. We have been working diligently to make sure clients are properly positioned to weather a period of lower economic growth. Markets are forward-looking and will likely hit bottom before the worst of the economic news is over. If history is any guide, investment markets will start their recovery before any recession is completely over. We believe the prospects for a recession this year are already priced into investment markets to a material degree. The fact that this is one of the most widely telegraphed potential recessions helps to minimize surprises and could also minimize the depth and duration of any market downturn from here. 


The events of this past year should remind us of the importance of having a well-thought-out financial plan and investment strategy. While caution is warranted, economic uncertainties should not be used as a market timing tool. No matter how good or bad any single year proves to be, it should not derail one’s investment goals or approach. Investing is a multi-year process and should accommodate even an exceptionally bad year. To that end, we are glad to have 2022 behind us. 


In closing, the biggest risk to achieving long-term success is abandoning a well-constructed investment plan. At the same time, I recognize the potential emotional impacts of market volatility and repeated periods like this. If for any reason, current market conditions are causing you undo stress and anxiety please contact us immediately. We are always here for you and happy to assist you in identifying options that may ease some of your angst.


Helping you live your BEST Life is our top priority, and in doing so, we live ours. Thank you for the opportunity to serve you. 


Warmest regards,

Rick W. Campbell


1 Forbes, 1/4/2023

2 State Street Global Advisors Fact Sheet 2/28/2023

No matter where you are on your life journey.
Let us help guide you along the way.
Start your journey
Financial Independence
931 Jefferson Blvd
Suite 2005
Warwick, RI 02886

Financial Independence, LLC is a Registered Investment Advisor firm and only transacts business in states where it
is properly registered, or is excluded or exempted from registration requirements. Registration as an investment
advisor is not an endorsement of the firm by securities regulators and does not mean that the advisor has attained a
particular level of skill or ability. All investment strategies have the potential for profit and loss. Past performance does not guarantee future investment success. Always consult an attorney or tax professional regarding your specific legal or tax situation. Copyright 2021.