On this episode of A Wiser Retirement Podcast, Casey Smith, Matthews Barnett, CFP®, ChFC®, CLU® and Brad Lyons, CFP® talk about Q4 2021 and give an overview of stock market performance. They talk about bonds, treasury inflation-protected securities, and real estate. They also review their 2021 market picks, discussing the Invesco Global Return Clean Energy ETF and the S&P Kensho New Economies ETF.
Q4 2021 capped off a really great year. The S&P 500 had a 10% gain in Q4 alone. These type of years are great when they come along, but you can't count on them year after year. Throughout our financial planning process, we don't plan for 28% in returns, but rather plan for much less. When we have years like that, we can take those returns and let them accumulate in our clients portfolios for future use.
Bonds play an important role in portfolios. They give us a more certainty of return, given that they have a stated interest rate on them. They mature at face value, so you know that you have a stated ending value for the bond at term. They mitigate the risk of investing in equities in a portfolio. They also will provide some interest, or income to the portfolio over time.
Interest rates and bond prices tend to have an inverse relationship with each other. As interest rates rise, the face value of the bonds we are holding have a tendency to go down, depending on the economic conditions.
TIPS is a treasury inflation protected security with a short term duration to it. It is designed that if inflation goes higher, the value of the underlying position and the rate at which the investor is paid on the bond increases with inflation. It has an offset to inflationary aspect to it. This protects against any loss in value in the bond portfolio due to rising interest rates.
Ironically, real estate did quite well in 2021, especially in Q4 2021. One interesting trend in real estate is the move from the traditional office space to distribution centers, cell towers, and warehouses that house server farms. When you look at REITs, the top holdings are public warehouses. Real estate can often be thought of as a bond proxy, because it does pay that generated income stream from rental income.
A year ago we chose which funds, stock, or index would outperform for 2021. Matthews picked the Invesco Global Return Clean Energy ETF. Brad chose S&P Kensho New Economies ETF. Casey chose the total market as his pick. Matthews pick, the Invesco Global Return Clean Energy ETF was down 22% in 2021. Brad's pick, the S&P Kensho New Economies ETF was up 3.69%. Casey's pick, the total stock market was up 25.67%.
Matthews chooses the SPDR S&P 500 ETF. Casey chooses Vanguard Information Technology Index Fund (VGT). Brad chooses iShares Global REIT ETF.
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1:20 Q4 2021
2:55 Should Bonds Still Be in Your Portfolio?
10:10 Real Estate
16:15 Review of Our Team's 2021 Market Picks
21:20 Our Team's 2022 Market Picks
Learn more about Brad Lyons.
Learn more about Matthews Barnett.