After a long, COVID imposed lockdown, our family finally snuck back into the world of travel. In case you have forgotten, travel is that thing you do where you get on a plane and go somewhere to see something different?
If I truly knew the future, we might not have planned to take a vacation to England during a market correction and military conflict – but there comes a time when you decide to move forward and do the things you want to do with your kids, before they run off to start their own lives.
As we were moving around London seeing the sights, we often used their subway system (The Tube – or Underground). I had always heard the warning “Mind the Gap!” but now I understand it a bit better having now seen the size of the gap. The newer trains have a small gap of about 2 inches between the platform and the train. This is no problem and not unlike any other train or subway I have experienced before. But the older trains on the lower levels. They are a different deal entirely. The gap between the train and platform was about 10 inches! This is big enough to see all the way down to your doom. It’s big enough to make you pause – but as everyone else behind you will not pause…you should not either.
In the past 45 days we have witnessed two significant gaps open up right under our feet. The first was the Federal Reserve’s commitment to get back in control of inflation through high interest rates. The second was the scare put into markets due to the Russian/Ukrainian war.
Of the two, the war is the hardest to watch. First, it’s happening on the doorstep to Europe. Second, the loss of life is emotionally jarring. And third, when we witness this much reckless hate, we can’t help but wonder where it will spread next. The second gap – rising interest rates - have now had a more detrimental effect on our portfolios than the war and all its sanctions. Since the Fed announced its plan to systematically raise interest rates through the first quarter of 2023, the market has taken them at their word and priced in the first 5-6 rate hikes. We see this in mortgage rates and rising corporate bond yields. We have always said: As rates go up bonds struggle. In fact, many quality bonds funds are down in value more year-to-date than some of the well-known equity indexes.
Back to the Undergound metaphor - as you come down the escalator to your train, you hear the instruction over the speaker to “Mind the Gap”. It’s really great advice. The assumption is that you want to board the train. You plan to go forward. You expect to reach your destination. But to do that you will need to step over and through the danger that has opened up beneath your feet. Sure, going back or not getting on the train is an option. But then you are stuck. The train goes forward to your destination without you.
So, what does Mind the Gap mean? It means there is danger in front of you. But the solution is not to panic or pause, but to step forward with determination and direction. Moving forward carefully during moments of risk keeps you moving towards your goals.
The world (and the Underground) only moves forward. And while the gap is sometimes bigger than we expected, moving carefully forward is the only way to make progress.
If you want more information on how we are adjusting portfolios to carefully move forward, or you just want to grab our hand as we get on the train together, let us help!