Looking back on 2021, markets and the larger economy did not behave as many would have expected. That raises questions over whether we need to rethink many of our assumptions about how they operate. As we look more closely, it can be argued that what surprised us most was the scale and rate of change rather than the changes as a whole.
The most important piece of conventional wisdom for portfolio managers is that a long-term view is needed during times of economic crisis, and that any short-term losses can be recouped over the long term. This still applies to the recovery of 2021, just at a much faster pace and with more inherent volatility than after previous economic downturns.
Interest rates and inflation should also take a more predictable turn in 2022. All indications are that one of the major inflationary pressures, the supply chain shortage, is beginning to abate as we begin the new year, and analysts predict an eventual interest rate increase in mid-2022. That means portfolio managers can take a more orthodox approach in forecasting and adjusting their clients’ portfolios.
Fundamentally, 2021 demonstrated that the best financial plans are created to be resilient, managed with flexibility, and built with trust between advisors and clients. With these crucial components, advisors can help their clients weather the most unprecedented of times to meet their investment goals.