The 2023 Andex Chart Story

In times of growing uncertainty, it is critical to adhere to your long-term plan, while also adapting with the evolving
environment. With current markets facing a sudden wave of bank instability, record high inflation, increased Fed tightening
and geopolitical risks overseas, it’s important investors remain diligent in their portfolio positioning. This backdrop could
be the “new normal” for 2023.

The enclosed Morningstar Andex chart* highlights the importance of staying invested throughout various market cycles
and global events. Whether you are investing in stocks, bonds, or a balanced portfolio, the most consistent contributor to
positive performance is time spent in the market. Since 1926, markets have rallied back from even the sharpest of selloffs.
Drawdowns have been most significant within risky asset classes such as US small-caps, yet with that risk comes reward.
Equities have been the best performing asset class for nearly the last 100 years. The best performing asset classes over the
past nearly 100 years have been within equities. Investors looking to smooth out volatility should consider a balanced stock/
bond portfolio. Both risk tolerance and time horizon are paramount in determining long-term strategic asset allocation.

Here are a few points to consider when reviewing the chart:

• Since the 1970s, recessionary periods have seen equity markets their portfolios. Particularly within fixed income, investors
recover to pre-drawdown levels within two years, on average. must find an appropriate balance between seeking yield,
Investors who exit the market during volatile periods are at risk and ballast against risk assets. Where suitable, alternative
of missing out on the often-swift recovery that follows. investments may provide an additional source of income to
help supplement lower yields within traditional asset classes.
• As inflation has reached record levels — higher than we’ve
seen over the past decade — the Fed continues to raise
• The US housing market has experienced significant demand
interest rates to control prices and tighten borrowing power.
through the early 2020s. Although the combination of low
• The ripple effects of the Covid pandemic sent markets into a inventory and high competition has made it challenging for
tailspin, as reflected in both stock and bond performance over many buyers to make a move, this scenario has driven home
the last few years. As we look forward to a recovery phase, prices up exponentially. Meanwhile, the increase of all-cash
such market fluctuations underscore the importance of offers and income property investment has added more
diversification and asset allocation during periods of volatility. competition to an already tight market.

• While banking instability continues to unfold, growing concerns • Average life expectancy has increased by around 20 years for
over market security are increasing. In the US, the intervention
both men and women, from the 1920s to the 2020s. With the
by federal regulators also raises questions on the oversight
majority of Americans living longer lives, needs around both
and prevention of future financial crises.
accumulation and retirement spending have subsequently
• Both dividend and bond yields have been on a downward increased. It is important to engage with your advisor to
trajectory for the past 40 years. This has created a ensure your investments are tailored towards meeting your
challenging environment for investors looking for income from retirement goals.

* Morningstar is a Chicago-based investment research firm that compiles and

analyzes fund, stock, and general market data. The Morningstar Andex Chart
provides clients with an overview of how markets and the economy have performed.

Not FDIC-Insured. Not Bank-Guaranteed. May Lose Value.

Past performance is no guarantee of future results. Hypothetical value of $1 invested at the beginning of the time period indicated. Assumes reinvestment of income and no transaction costs or taxes. This is for illustrative purposes only and not indicative of any investment. An investment cannot be made directly in an index. Government bonds and Treasury bills are guaranteed by the full faith and credit of the United States government as to the timely payment of principal and interest, while stocks are not guaranteed and have been more volatile than the
other asset classes. Furthermore, small stocks are more volatile than large stocks and are subject to significant price fluctuations, business risks, and are thinly traded. The balanced portfolio was created for illustrative purposes only. It is neither a recommendation, nor an actual portfolio. All income was reinvested and the portfolio was rebalanced monthly. Recession data is from the National Bureau of Economic Research (NBER). NBER does not define a recession in terms of two consecutive quarters of decline in real GDP. Rather, a recession is a recurring period
of decline in total output, income, employment, and trade usually lasting from six months to a year and marked by widespread contractions in many sectors of the economy. Gold prices are from London Bullion Market Association and represent the London P.M. daily closing prices per troy ounce. Oil prices are for West Texas Intermediate Crude per barrel from Morningstar. Gold and oil prices quoted in U.S. dollars. Market expansions, contractions, and recoveries are defined for U.S. Large Stocks, which are representative of the stock market. A contraction is defined
by a decline in the stock market from its peak by 10% or more. A recovery is represented as the number of months from the bottom of a contraction to its previous peak. An expansion measures the subsequent performance of the index from the recovery until it reaches the next peak level before another 10% decline. Returns are compound annual returns, and risk is measured by standard deviation. Standard deviation measures the fluctuation of returns around the arithmetic average return of the investment. The worst 5-year calculations are out of 1,105 rolling
60-month periods. Source: U.S. Small Stocks—Ibbotson® Small Company Stock Index; U.S. Large Stocks—Ibbotson® Large Company Stock Index; 20-year Government Bonds—Ibbotson® U.S. Long-Term Government Bond Index; 5-Year Government Bonds—Ibbotson® U.S. Intermediate-Term Government Bond Index; 30-Day Treasury Bills—30-day U.S. Treasury bill; Inflation—Consumer Price Index; Prime Interest Rate—The Federal Reserve; 30-Year Government Bond Yield—The Federal Reserve; S&P 500 Price Earnings Ratio—Robert Shiller (Yale) from 1926–1999
and Morningstar thereafter. Dividend Yield – Robert Shiller (Yale) from 1925 to 2022. Life expectancy data from The National Center for Health Statistics, National Vital Statistics Reports. Minimum wage data from the U.S. Department of Labor. Federal deficit data from usgovernmentspending.com. Federal tax rates from the Tax Foundation. Personal saving rate and unemployment data from the U.S. Bureau of Economic Analysis. Median house price and population statistics from the U.S. Census Bureau. Additional disclosure: The Past 30 Years—Hypothetical
value of $10,000 invested at the beginning of 1993. The 1993 start date was selected to depict a retirement time horizon of 30 years. International investments involve special risks such as fluctuations in currency, foreign taxation, economic and political risks, liquidity risks, and differences in accounting and financial standards. Emerging-market investments are riskier than developed market investments. Gold, like any other coin or bullion, is subject to investment risks like perceived scarcity of coin, its quality, current demand, market sentiment, and economic
factors. The global portfolio was created for illustrative purposes only. It is neither a recommendation, nor an actual portfolio. All income was reinvested and the portfolio was rebalanced monthly. Correlation data is based on monthly returns. Asset classes can be positively or negatively correlated, or have no correlation at all. Perfect positive correlation between two assets is represented by +1, while perfect negative correlation is represented by –1. Uncorrelated assets assume the value of 0. The worst 5-year calculations are out of 301 rolling 60-month periods.
Source: World ex-U.S. Stocks—Morgan Stanley Capital International (MSCI) World ex-U.S. Index; Bonds— Ibbotson® U.S. Long-Term Government Bond Index; Emerging-Market Stocks—Morgan Stanley Capital International Emerging Markets Index; Gold—Federal Reserve (2nd London fix) through 1987 and Wall Street Journal London A.M. closing price thereafter. Annual Net Asset Fund Flows: U.S.-domiciled open-end fund flows from Morningstar. Start date of 1994 constrained by data availability. U.S. stock: funds that primarily invest in U.S. stocks;
International stock: funds that invest in specific regions or a diversified mix of international stocks with 40% or more in foreign stocks; Bond: taxable bond funds (government, corporate, international, emerging markets, high-yield, multisector) that invest primarily in fixed-income securities of varying maturities. ©2023 Precision Information, dba Financial Fitness Group. All Rights Reserved. The reproduction of part or all of this chart without prior written consent from Financial Fitness Group is prohibited.
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