Jerry VanderLugt sees Wall Street with further volatility in 2022. The founder and principal of JVL Wealth Strategies LLC, which recently moved to a new office in Wyoming, VanderLugt spoke with MiBiz about the market in the new year, the prospect of rising interest rates and higher inflation, and where investors are looking to put their money these days.
Will we see more volatility or perhaps some stability in the market in 2022?
I would say we will have continued volatility and I would even expect that we will see a draw down bigger than we’ve seen in 2021. I think the market is at a high range of fair value, but I believe there are enough shoes in the air that any one that could drop could cause the market to go back, and that could be as much as a double-digit pullback. Overall, we still believe the equity market is the place to be and I believe it would be higher in December than it is in January, but people need to at least be prepared for a draw down that we haven’t experienced in a while.
How should investors think about the probability of rising interest rates in 2022?
Our position is that rates should rise. I would say that the majority of us have been saying that for a long time, but it hasn’t happened, and the reason it hasn’t happened is because we haven’t had the inflation that we’re experiencing now. When you look at the Fed stopping or slowing down their purchases of bonds, which lessens demand, and what I believe they need to do over time to start raising rates on the short end to try to fight the inflation, I would expect interest rates to rise, which for anyone holding bonds is a negative. Obviously the bond market is inverse so it goes down when interest rates rise. So, I believe that a normal long-term bond is going to have a tough year in ’22.
Have investors already been cooking an increase in interest rates into their thinking for 2022?
From my standpoint, people are talking about it. I don’t necessarily believe that investment themes have changed because of it, and that’s a question all of us are having: Is the inflation really going to last a full year, or is it something that once we get kind of into the first quarter, second quarter of 2022, begins to diminish and everything the market has priced in is going to be accurate? And that’s a tough question.
How are investors responding, or may they respond, to higher inflation?
We have traditionally said that equities are a good place to be in inflation. If you contrast where money can go, obviously savings is virtually zero. Even if you start getting some interest rate rise, just the inflation on bonds makes bonds unattractive. So, equities have normally performed well during inflation. The only exception to that would be a runaway, ‘we can’t stop inflation,’ and I don’t see that. That would be very bad for the market. The market has done well in inflationary times, so from our standpoint we are still bullish on the stock market as the place to be, given the environment that we’re in.
What did you see emerge among investors in 2021 that may continue or even accelerate in 2022?
In our world, the biggest thing that’s emerging is going into alternative investments that don’t correlate with stocks or bonds. It’s really a number of factors, and No. 1 is that they’re really more accessible in 2021 than in the past. It used to be that those were for foundations or very, very large wealthy families. There’s a lot of technology now that allows firms like ours — registered investment advisory firms — to access a very broad array of alternative investments, and there’s companies that have even put them into a mutual fund where a retail investor can fund them. The thing we like about that is you don’t have the same volatility of the stock market and normally, if structured appropriately and with the right manager, it will outperform the bond market. You really get less volatility for that portion of your assets that are in alternatives, and I think that’s going to continue to grow.
What kind of alternatives?
Private debt has been a big one for us, and then, obviously, privately owned real estate. We’re a big believer that real estate in inflationary times is a good investment.