Q1 Statements Letter
A vast landscape.
As of this week, the U.S. stock market (S&P 500) is down around 12% from its February highs, with the tech-heavy Nasdaq stock index, i.e., Apple, Google, Nvidia & Tesla, posting sharper price declines. This recent decline marks the largest drop since October 2023. Even after some recent rebound markets remain down about 8% year-to-date. Historically and on average, markets experience a 10% pullback once a year and a 20% decline about once every three years. The current decline is within a normal range.
Current economic fundamentals like unemployment (4.2%), inflation (2.4%), and household debt remain within normal bounds. Are we on track for a recession? At present, only one of ten recession indicators we follow is signaling caution. This doesn’t imply we are in the clear, just that the evidence does not point to a recession at this time.
Interestingly, consumer sentiment—how people feel about the economy—is near multi-year lows. In April, the Consumer Sentiment Index dropped to 50.8, the weakest reading since 2022. Historically, such periods of gloom often coincided with opportunity: when sentiment hits bottom, stock markets tend to rebound strongly over the following year.
Markets are forward-looking; they don’t react to today's fears, but tomorrow’s possibilities.
This past quarter, we’ve seen headlines around tariffs, economic uncertainty, and market volatility dominating conversations. In times of uncertainty, it’s natural to seek clarity. At Vector Wealth, we believe that having a set of frameworks can help guide thoughtful action.
Four Frameworks for Investors:
Time Horizon – Time in the market is more effective than timing the market. Missing just the 10 best market days over a 20-year period could reduce your total return by nearly half.
Real Returns – Outpacing inflation matters more than headline nominal numbers. Investing is about preserving purchasing power over time.
Diversification – Prepare for multiple scenarios by owning a mix of assets classes. This year, while U.S. stocks have struggled, international stocks, bonds, and gold are positive and have helped diversify.
Compounding Growth – Initial investment plus interest earns interest. Over time, growth becomes exponential.
Bucket-Based Approach to Planning and Investing
We structure portfolios around these four frameworks. For most clients in or near retirement, this means positioning volatile growth assets in long-term buckets that are typically positioned for use 10 or more years in the future. In addition, we segment funds for 2 to 3 years of expenses into a short-term investment bucket. This approach reduces or eliminates the need to sell those long-term positioned investments for short-term needs.
At Vector, we emphasize the phrase “avoid becoming a forced seller.” It’s more than a behavioral rule of thumb, we believe it helps with prudent decision making, staying focused during the downturns, and being available for opportunities. Helping you set and maintain your financial life goals is our shared objective.