“Well, here’s another nice mess you’ve gotten me into.”

So sayeth the great Oliver Hardy to his equally talented sidekick, Stanley Laurel, in countless classic films. With only a few minor changes, the same could be said to those responsible for our macro-economic well-being. Sure, as we stated often, no playbook for the post-COVID economic recovery existed, so missteps were inevitable. But some were not. Washington’s massive and ongoing fiscal largesse in recent times and the Fed’s monetary spigot, now turned off but wide open for far too long, amounted to pouring unneeded fuel on the inflationary fires. The Fed now is responsible for putting out those fires, but when will the Fed get a handle on the problem and at what cost to the economy?

Good questions, without answers, and that’s what’s going on with the stock and bond markets in 2022. A collection of known unknowns, but are you and we among those groping around in the dark? Not at all. We have a trustworthy compass in terms of carefully researched, highly disciplined investment processes and five overarching recommendations that we are only too happy to resubmit to you when the markets are misbehaving and all seems lost. Those recommendations:

Continue to maintain an asset allocation structure appropriate for your circumstances

Please believe us, if we were consistently accurate forecasters making large-scale asset shifts based upon those accurate forecasts, that is how we would manage money. But we can’t make such forecasts and no one else can either. The solution: structure your portfolio in a circumstance-appropriate manner, stay well-diversified, and stay the course.

To a large extent, continue to index your overall portfolio

Indexing outperforms most active management strategies over time, indexing is cheap, indexing is style-pure, i.e. the investor knows exactly what he or she is buying.

Regarding your non-indexed individual equities, continue to emphasize the Value style of investing

Trends and fads come and go, but nothing succeeds over time like cheap. In other words, emphasize equities that are cheap in terms of what the company earns, what the company pays out in the form of dividends, and the company assets providing those earnings and dividends. Value’s arch rival, the Growth style? A very small seat at the table in 2022. The 2015–2021 excesses currently are being wrung out. If history is any guide, that process will take a few more years. Emphasize Value investing.

Continue to include gold in your portfolio

This asset class frequently marches to its own drummer, therefore, gold is a good diversifier. As we frequently point out, however, five to 10% of your assets makes sense…20 – 30% does not.

Continue to keep a good slug of cash on hand

Around here, we refer to that slug as a Rainy Day Fund, and maintaining one always makes good sense. How much? One’s comfort level is the prime determinant, but we regard the smaller of 10% of one’s investable assets and $50,000 as a good starting point. And needless to say, the assets of the RDF should be invested as conservatively as possible.

Never any guarantees, of course, but the above are solid time-tested recommendations, i.e. good rules to live by as the remainder of 2022 unfolds. And, in a larger sense, please keep in mind that U.S. equities have delivered 9 – 10% per year for almost 100 years. The 2022s are the price we periodically pay for those 9 – 10% investment returns.

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“Why don’t you do something to help me?” is another famous Oliver Hardy line frequently addressed to his always-clueless sidekick. As we deal with the inflationary mess of 2020, help, regrettably in the form of higher interest rates, is being provided. That is to say, only the central bankers and politicians largely responsible for the current mess can get us out. Ultimately, we will get out. The medicine may be bitter to the taste for a while, but ultimately we will get out.

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