“You have a choice. Mindsets are just beliefs. They’re powerful beliefs, but they’re just something in your mind, and you can change your mind.” Carol Dweck

Good morning,

I trust everyone enjoyed the weekend and hopefully everyone is getting excited for the summer ahead!

I always enjoy when clients and friends recommend some new reading, particularly when it resonates for me around the topics of growth that can be applied both professionally and personally, themes that work to enhance our learning and ability to lead clients and families through their discovery of wealth with purpose.

Mindset: The New Psychology of Success

Author Carol Dweck studies human motivation. She spends her days diving into why people succeed and what’s within our control to foster success. Her theory of the two mindsets and the difference they make in outcomes is incredibly powerful. A growth mindset requires a commitment to continual learning and improvement to develop the skills that will propel you forward to accomplish your goals. It also requires a willingness to move outside of your comfort zone.

There are two main mindsets we can navigate life with: growth and fixed. Having a growth mindset is essential for success.

The book takes us on a journey into how our conscious and unconscious thoughts affect us and how something as simple as wording can have a powerful impact on our ability to improve. Dweck’s work shows the power of our most basic beliefs…..whether conscious or subconscious, they strongly “affect what we want and whether we succeed in getting it.” Much of what we think we understand of our personality comes from our “mindset.” This both propels us and prevents us from fulfilling our potential.

This growth mindset thinking is directly in line with our approach to the elements of wealth and growth, understanding that changing our beliefs can have a powerful impact. The growth mindset creates a powerful passion for learning and can help ensure that decisions we make are aligned with your unique and ever evolving vision. Developing a growth mindset can put you on the path of understanding what gives you purpose and meaning, critical tools we use as we cultivate a strategic vision that reflects your individual goals and the purpose of each of the assets you own, a critical approach for nurturing and protecting your definition of freedom and unleashing your full potential.

And now, to the markets

Volatility has picked up noticeably in recent weeks, with rather large swings higher and lower. To make matters more disjointed for portfolios, bond prices have moved lower, suggesting they have not offered the kind of diversification benefits investors have come to expect. Below, we offer some perspective on the recent market turbulence, address the issue of inflation expectations, and discuss a silver lining that has emerged in the wake of this year’s challenges. Global equity markets have had a poor year thus far. But, periods of market weakness are not uncommon. In fact, the U.S. equity market, which is the most widely followed, has averaged at least one sizeable decline (ie. 10% or more) every year since 1975, with the average fall being nearly 20%. Yet, the U.S. equity market still managed to generate a positive annual return in 35 of the past 46 years. In other words, dealing with market volatility is part of the investing experience and our ability to navigate the volatility through active management ensures that we are taking advantage of opportunities at the moment.

A question investors may be asking is whether the declines year-to-date signify the start of something potentially more serious that would cause a durable impact to the future trajectory of the global economy and the path of corporate earnings. After all, these two factors, which themselves are intertwined, tend to be the predominant drivers of longer-term equity returns.

There is certainly no shortage of concerns: the war in Ukraine and the knock-on effects via commodities, and China’s various lockdowns that threaten its growth outlook and exacerbate the problems facing global supply chains. But, the primary culprit behind the weakness seen in markets is inflation, which has been elevated and rising. The bigger risk is that it becomes embedded in the expectations of consumers and businesses and becomes self-fulfilling. A longer lasting period of elevated inflation could present a meaningful headwind to economic growth and corporate earnings.

Inflation expectations have indeed been creeping higher. This explains the relatively aggressive actions undertaken by central banks who have been raising interest rates rather forcefully. Yet, there may be some relief on the horizon. Recent inflation readings in the U.S. have hinted that growth in core prices, excluding food and energy, may be on the verge of starting to slow. In other words, inflation may remain elevated but close to peaking, marking an important change in trend as we move into the second half of the year.

Equity markets have been under pressure, but so too have bonds. In fact, bond markets have had one of their worst starts to a year. While it’s easy to focus on the poor returns of late, there is a silver lining. Given the sell-off in global bond prices, the yields offered by government and corporate bonds have risen meaningfully. As a result, there is now an opportunity to lock in future returns in fixed income that are significantly higher than levels seen over the past decade. Many investors had shunned fixed income in recent years because of very low yields. However, the potential for growth and future returns from the asset class has now arguably changed, for the better.

Periods of market turbulence, such as the current one we are experiencing, can understandably cause some angst. Yet, it’s a relatively normal phenomenon that occurs from one year to the next and understanding that there is always opportunity amid uncertainty and our approach to portfolio management will blossom in this environment. The key risk remains whether inflation becomes entrenched in the expectations of businesses and consumers. We’ll be watching this closely, in addition to the odds of a U.S. recession which remain low for the time being. In the meantime, we are beginning to see subtle opportunities in fixed income in our portfolios given the improved prospects for the asset class that have finally emerged.

"We forget: In life it doesn't matter what happens to you or where you came from. It only matters what you do with what you've been given. And the only way you'll do something spectacular is by using it all to your advantage.” Ryan Holiday

As Ryan Holiday reminds us, as we continuously seek out opportunities amid uncertainty…..the obstacle is the way, and we need to consistently approach all moments

With energy

With persistence

With a coherent and deliberate process

With resilience

With strategic vision

With, importantly, an eye for opportunity and pivotal moments

As we head into the week, remember that the mindset you choose is yours to decided. If you can shift your mindset to continued growth and progression it will work toward realizing your soul purpose and the freedom that you are meant to discover.

Are you ready to get to work?

Be well & enjoy the moments

Derek