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Q1 2022 Market Update

Over the past 12 months, you have probably seen a general increase in prices across common goods and services you purchase. Recent inflation measurements have placed the figure at a 7% increase from one year ago. These levels have not been seen since the early 1980s. From an investment point of view, high rates of inflation are equivalent to running up an escalator that is headed in the opposite direction. It can be done, but it sure takes a lot of extra effort.

In line with this increase in inflation, Social Security announced a 5.9% increase in the Cost of Living Adjustment (COLA), which was the largest increase since 1982. If you are receiving Social Security benefits, this may seem like an increase in your benefits, in reality, it is an attempt to keep up with the increased expenses you have due to inflation.

As with most things in life, there is no silver bullet to solve this problem. Historically, most asset classes have had mixed or insignificant benefits during inflationary times. Over the past year, we have been tuning our strategies for the possibility of increased inflation. In August of 2020, we added TIPS to the strategy. TIPS are Treasury Inflation-Protected Securities, which are bonds that the government issues where their value increases as inflation increases. We further increased this position in May 2021. In August and November of 2020, we added value stocks to the strategy. Value stocks tend to trade at a lower price than the company’s performance and financials would otherwise indicate. This relative underpricing should pave the way for the stocks to return (increase) to fair value, helping to keep pace with inflation. Recently, we have added more value stocks to our strategies.

Historically, the Fed has been appointed the tamer of inflation, and they have repeatedly reassured us that they have every tool they need to do the job. In the depths of the pandemic, the Fed signaled that they would not even consider raising interest rates (which are currently at historic lows) until late 2023. On Wednesday, January 26, they discussed starting that process early, in March 2022. This is widely considered a necessary, and some would argue overdue, step to getting the economy off the stimulus that the low-interest rates provide. The goal of increasing rates would be to rein in inflation, but a potential consequence could be market volatility.

On a more positive note, the US economy seems to be showing progress which can be seen in lowering unemployment numbers, as well as the GDP growth of 5.7% from one year ago (announced on Thursday, January 27th). Further positive news is the ongoing evolution of COVID. The Omicron variant has produced dramatically more cases (4x compared to last year), however the hospitalization rate is lower than previous variants. From an economic point of view, this change is getting us closer to something that might resemble a new normal, which is always a positive.

For those contributing to retirement accounts, below is a list of the 2022 contribution limits. Please reach out to us if you have any questions!

Traditional IRA and Roth IRA: $6,000 for those under age 50, $7,000 for those age 50 and over. 401(k): $20,500 for those under age 50, $27,000 for those age 50 and over.

For those that are signed up for Medicare, the 2022 Medicare Part B premium is $170.10. This is an increase from $148.50 (thank you inflation). Your 2022 premium might be higher if your taxable income was above $91,000 for the 2020 tax year.

As a reminder, the RMD age is now 72 (pre 2020 it was 70.5). This means that you are Required to take a Minimum Distribution from your IRA, starting the year you turn 72. Again, if you have any questions about the above items please give us a call.

Citrus Wealth Management

O: 909.312.4412 // F: 909.312.4441

1461 Ford Street, Suite 103, Redlands, CA 92373

The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material nor is it a recommendation. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Blaine Shira and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Past performance does not guarantee future results. Future investment performance cannot be guaranteed, investment yields will fluctuate with market conditions.

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