Many people dreaming of starting their own business spend too much time in dreamland and not enough time in “planningland,” especially when it comes to the financial considerations. While most entrepreneurs are acquainted with the need to create a formal business plan and know it has financial components like statement projections and cash flow forecasts, it’s not uncommon that they neglect the personal impacts.

• What kind of personal savings cushion should you accumulate beyond your capital contribution to the business?
• What’s the opportunity cost of leaving a fulltime W-2 job to be a business owner?
• What are the financial impacts on your family and other personal obligations?
• How will the decision change your lifestyle now and affect retirement later?

Learn the important questions to ask before you commit to your entrepreneurial path so you can accomplish your dreams.

Defining Growth & Value 

For many, the growth and value styles of investing may be foreign terms. Let’s begin with defining them. 

Growth companies tend to be those with revenues growing faster than their broader markets. They do not typically pay dividends and historically have been more volatile. Growth stocks are usually priced higher than the broader market because investors are willing to bet on their potential for continued earnings growth. In other words, pay up now for higher earnings later. 

In contrast, value stocks are generally considered cheap compared to the broader market or their own intrinsic value. They tend to be more mature companies with less opportunity for earnings growth and compensate investors with dividend payments and the opportunity for the stock price to “correct” back to its perceived true value. 

Do they work equally? 

Looking back over the past 20 years (as shown in Figure 1), we saw the domination of the growth style. As a result, heading into 2022, many investors found themselves under-allocated to parts of the market that had underperformed in recent years, such as value stocks, and holding an overweight to those areas that had experienced a long stretch of outperformance, such as growth stocks. 

That starting position was a disadvantage to many investors as several long-term trends were 

reversed. In 2022, value stocks, which feature sectors like energy, delivered strong returns, while US growth stocks, which feature many stocks in the technology sector, struggled in comparison as the tailwind of falling interest rates dissipated. 

While the broad trend favored growth stocks over the last two decades, looking closely shows that in the last three years, we’ve seen five significant and pronounced changes in leadership. This leads to the next question of whether there are specific environments that favor one style over the other. 

Environments for Growth & Value 

Growth stocks tend to do well when interest rates are low or falling. Low interest rates mean the cost of doing business is cheap, so it’s easier for these companies to reinvest, expand, and finance their growth. What makes growth stocks potentially attractive is the prospect of higher earnings in the future, a delayed return of cash flows for investors. This means growth stocks tend to be more interest rate sensitive, so periods of rising rates can be challenging as the cost of capital increases. Contrast this with value stocks, which characteristically tend to pay dividends. Since investors receive their anticipated earnings from traditional value stocks via dividends much 

sooner, this equates to less interest rate sensitivity. All else held equal, a rising interest rate environment could make value stocks more attractive than growth. 

Positioning the Portfolio 

As we move through a slowing growth environment with an elevated risk of recession due to higher interest rates and continued geopolitical risks, heightened volatility is expected to remain. Under these conditions, portfolios that have been overweight growth stocks could look to balance that by adding value stocks or strategies to provide greater ballast within portfolios. 

Tilting the portfolio towards one style or another could benefit portfolios, but not having exposure to a style when the market turns could be detrimental to the long-term goals of a portfolio. History has shown it’s inherently hard to time the markets, but it is easy to have time in the markets and maintain diversification across both growth and value. Ultimately deciding which style is better could be like choosing between two of your favorite superheroes—Spiderman and Wonder Woman. Each one has unique strengths and weaknesses, and as we enter a complex environment ahead, it is likely you need both. 

 Key Takeaways 

• Growth and value investing are two distinctinvestment styles. Growth focuses on fast growingcompanies that typically have higher prices today forhigher earnings later. Value focuses on more maturecompanies that are discounted to their perceivedvalue and tend to pay a dividend.
• Growth tends to do better in low or falling interestrate environments while value tends to better inrising rate environments.
• Portfolios may be imbalanced due to growth’sdomination over the past decade. Considerrebalancing the portfolio across growth and value.

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Important Information

This is for informational purposes only, is not a solicitation, and should not be considered investment, legal or tax advice. The information in this report has been drawn from sources believed to be reliable, but its accuracy is not guaranteed, and is subject to change. Investors seeking more information should contact their financial advisor. Financial advisors may seek more information by contacting AssetMark at 800-664-5345.

Investing involves risk, including the possible loss of principal. Past performance does not guarantee future results.Asset allocation cannot eliminate the risk of fluctuating prices and uncertain returns. There is no guarantee that a diversified portfolio will outperform a non-diversified portfolio. No investment strategy, such as asset allocation, can guarantee a profit or protect against loss. Actual client results will vary based on investment selection, timing, market conditions, and tax situation. It is not possible to invest directly in an index. Indexes are unmanaged, do not incur management fees, costs and expenses and cannot be invested in directly. Index performance assumes the reinvestment of dividends.

Investments in equities, bonds, options, and other securities, whether held individually or through mutual funds and exchange traded funds, can decline significantly in response to adverse market conditions, company-specific events, changes in exchange rates, and domestic, international, economic, and political developments.

Bloomberg® and the referenced Bloomberg Index are service marks of Bloomberg Finance L.P. and its affiliates, (collectively, “Bloomberg”) and are used under license. Bloomberg does not approve or endorse this material, nor guarantees the accuracy or completeness of any information herein. Bloomberg and AssetMark, Inc. are separate and unaffiliated companies. 

AssetMark, Inc. is an investment adviser registered with the U.S. Securities and Exchange Commission.

©2023AssetMark, Inc. All rights reserved.105476| C23-19748| 03/2023| EXP03/31/2025

AssetMark, Inc.

1655 Grant Street10thFloorConcord, CA 94520-2445800-664-5345

Last year was an exceptional year, and not in a good way. There was no shortage of worries during the year from COVID-19, the Ukraine war, and the most central story of all: inflation and interest rates. In this edition of On the Mark, we identify the impact of inflation on markets and whether investors should expect more of the same or changes in 2023. 

Stocks and bonds fell 10% for the first time on record 

In 2022, the Federal Reserve (Fed) switched its narrative from transitory inflation to one committed to taming the inflation beast. The Fed raised interest rates seven times from 0.0% to 4.25-4.5% in merely 10 months. This surge in interest rates hurt both stocks and bonds. Stocks, as represented by the S&P 500 index, fell 18.1%, its worst year since 2008 and the sixth worst on record. Meanwhile, bonds, as represented by the Bloomberg US Aggregate index, had its worst year since the inception of the index in 1976, falling by 13.1%i. 

 Losses in stocks are not new. Losses within bonds are less common but also have occurred previously. What made 2022 unique is how sharply stocks and bonds fell simultaneously. Last year was only the sixth time since 1926 that both the S&P 500 and Bloomberg US Aggregate declined. What’s truly remarkable is that it was the only time in history where both stocks and bonds each fell by more than 10%, as seen in the below chart. 

 Key Takeaways 

o2022 was an exceptionally bad year as inflation andhigher interest rates wreaked havoc on markets.

o2022 is the only time in history where stocks andbonds each fell by more than 10% and eventraditional inflation hedges failed to protect portfolios.

oLooking ahead to 2023, the singular focus oninflation will likely shift to growth and likely bringingnew surprises for investors.

Boring was beautiful 

While it was a hellish year for stocks, not all stocks fared the same. Over the past decade, fast-growing technology companies dominated returns when compared to those of more “boring” companies. That trend reversed course sharply in 2022 as investors were more focused on companies that made goods and have shown resiliency through varied economic cycles. The Nasdaq index, often synonymous with technology stocks, fell 32.5%, while the blue-chip stocks listed on the Dow index fell 6.9%, marking 

a difference of nearly 26%. It’s not that technological innovation is no longer valuable, but many of these companies were priced for perfection, and higher interest rates called into question earnings potential for many of these companies that were still years away from profitability. 

Source: FactSet. 

Traditional inflation hedges did not work either 

Last year wasn’t challenging for only stocks and bonds. It also was a surprisingly challenging year for investments that were considered inflation hedges. Real estate, gold, and even bonds aimed at protecting against inflation, known as Treasury Inflation-Protected Securities (TIPS), all lost money in 2022ii. Even claims of cryptocurrency as an inflation hedge proved false. Bitcoin was down 75% from its peak toward the end of 2021iii. Except for commodities, there was no place for investors to hide. 

Looking ahead to 2023 

In 2022, the only thing that mattered to markets was inflation and the Fed’s focus on taming the inflation beast. This singular focus will shift in 2023 from inflation to growth since inflation has likely peaked and is falling, and the economy is slowing. 

For riskier investments like stocks, even if the economy avoids an official recession, profit growth for companies likely will slow in 2023. Additionally, stock investors probably will become more focused on which companies can better weather that slowdown, a continuation of the trend we saw in 2022. However, while caution is warranted, economic uncertainties should not be used as a market timing tool. Markets are forward-looking and will likely bottom before the worst of the economic news is over. 

Bonds, on the other hand, are unlikely to repeat the carnage of 2022. Higher starting yields should provide a better buffer from additional rate hikes. In fact, investors finally have reasonably attractive opportunities within bonds as they wade through continued uncertainty. 

Finally, 2022 was a reminder of the importance of having a well-thought-out financial plan. It is a reminder that no matter how good or bad any single year proves to be, it should not derail one’s investment goal. Investing is a multi-year process and should accommodate even an exceptionally bad year. To that end, good riddance to 2022. Be glad it’s behind us.

 Key Takeaways 

2022 was an exceptionally bad year as inflation andhigher interest rates wreaked havoc on markets.

2022 is the only time in history where stocks andbonds each fell by more than 10% and eventraditional inflation hedges failed to protect portfolios.

Looking ahead to 2023, the singular focus oninflation will likely shift to growth and likely bringingnew surprises for investors.

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i FactSet 

ii Gold represented by Bloomberg Sub Gold; Real Estate represented by S&P 1500 Equity Real Estate Investment Trusts 

iii Coindesk  

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Important Information

This is for informational purposes only, is not a solicitation, and should not be considered investment, legal or tax advice. The information in this report has been drawn from sources believed to be reliable, but its accuracy is not guaranteed, and is subject to change. Investors seeking more information should contact their financial advisor. Financial advisors may seek more information by contacting AssetMark at 800-664-5345.

Investing involves risk, including the possible loss of principal. Past performance does not guarantee future results.Asset allocation cannot eliminate the risk of fluctuating prices and uncertain returns. There is no guarantee that a diversified portfolio will outperform a non-diversified portfolio. No investment strategy, such as asset allocation, can guarantee a profit or protect against loss. Actual client results will vary based on investment selection, timing, market conditions, and tax situation. It is not possible to invest directly in an index. Indexes are unmanaged, do not incur management fees, costs and expenses and cannot be invested in directly. Index performance assumes the reinvestment of dividends.

Investments in equities, bonds, options, and other securities, whether held individually or through mutual funds and exchange traded funds, can decline significantly in response to adverse market conditions, company-specific events, changes in exchange rates, and domestic, international, economic, and political developments.

Bloomberg® and the referenced Bloomberg Index are service marks of Bloomberg Finance L.P. and its affiliates, (collectively, “Bloomberg”) and are used under license. Bloomberg does not approve or endorse this material, nor guarantees the accuracy or completeness of any information herein. Bloomberg and AssetMark, Inc. are separate and unaffiliated companies. 

AssetMark, Inc. is an investment adviser registered with the U.S. Securities and Exchange Commission.

©2023AssetMark, Inc. All rights reserved.105476| C23-19748| 03/2023| EXP03/31/2025

AssetMark, Inc.

1655 Grant Street10thFloorConcord, CA 94520-2445800-664-5345