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12.30.2022 by David M. Smith

A Tough Year for Investors Ends and Looking Toward 2023

To say 2022 was a tough year for investors is an understatement. Let’s run through a few statistics and comments to put it into perspective. As of this writing, the S&P 500 is down 20% YTD with a couple more days of trading. The tech-heavy NASDAQ Index is down almost 35% YTD. If you can believe it, the price of a barrel of oil is up only 3.8% since the beginning of the year. That is a laughable statistic considering the roller coaster of a ride oil has been this year. Less than three months into 2022, oil was 67% more expensive as compared to the beginning of the year. (Data sourced on Yahoo Finance Charts.) The price of oil also reflects the shock of Russia invading Ukraine which greatly increased geo-political tensions. As tough as all that is to stomach, some of the biggest pain for investors was bonds. Corporate bonds had their worst year of performance on record which was three times worse than the second-worst performing year in 1974. THREE TIMES. MarketWatch Bonds usually buttress portfolios from downturns but that was not the case this year. OK, enough of the bad news, let’s move on....

A Longer-Term Perspective: Anything can happen in one year, so it is important to keep a longer-term perspective. Let’s consider what has happened in the markets over the last five years. The S&P 500 is up 41%, the NASDAQ Index is up 48%, and the bond index is essentially flat. If an investor has a balanced portfolio and remained fully invested over the last five years, portfolio returns should be solidly positive. Looking back over a longer period doesn’t erase the painful returns of 2022, but it does put it into perspective.

A Silver Lining: As bad as 2022 has been it has brought a couple of good things that should bode well for the future. For one, stock prices are much cheaper than at the beginning of the year. Any new funds invested will be invested in cheaper stocks. Also, for the first time in over a decade, bond yields look attractive. For conservative investors and retirees, it is now possible to get yields of 4% or more on high-quality bonds and those yields may be with us for a while. MarketWatch

Celebration at the White Barn Inn! We had a great celebration for Dave at the White Barn Inn in Kennebunkport and a good time was had by all. We had a few speeches for Dave, as well as some gifts. As many of you know, Dave is a huge University of Kentucky basketball fan. So, we got him a UK golf bag, with all the UK accessories that any golfer would need. Below are some pictures we took at the dinner. If any of you are on a Florida golf course and see a lot of royal blue in the distance – you have spotted him! 😊 Dave, we wish you a happy and enjoyable retirement! Enjoy this next phase of your life, and have fun golfing – Fore!

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Some Changes to the Newsletter in 2023: With Dave’s retirement we lose one of our newsletter authors. But this allows us to showcase the other advisors at RSWA. In the new year, you will see editions of the newsletter from Tracey, Annie, Gerrit, and Donovan. We hope you like hearing more voices at RSWA in 2023. As always, please give us your feedback/suggestions for the newsletter as we are always looking to improve it - AND don’t forget to share it with friends!

2023 Markets Outlook: Charles Schwab is one of the firms we resource when trying to read the market tea leaves. They have good insights and seem to be about as good as anyone with what is happening in the markets. According to Schwab, 2023 will still have stubbornly high inflation with a good chance of a recession, but inflation will move lower throughout the year. Stocks will remain volatile and they like high-quality assets for both stocks and bonds. This all sounds logical, but we always have to take market predictions with a grain of salt (please read the next article). 2023 Market Outlook: Cross Currents | Schwab Funds

But… Predictions for the Markets are Tough: At the beginning of 2022, Wall Street analysts gave predictions on S&P 500 company earnings – and absolutely nailed it (with current estimates for fourth-quarter earnings). But the market analysts totally missed calling the bear market in stocks and bonds. Why? Because even though the predictions for earnings were spot-on, they missed the biggest factors that affected markets in 2022, which were inflation and rising bond yields (plus Russia’s invasion of Ukraine which made inflation even worse). We can read all the predictions we want, and many of them will sound logical, but we have to be prepared that they are wrong – just like in 2022. WSJ

Financial Planning/Investment Strategy Corner:

Asset Allocation and Rebalancing: This year was a classic example of how hard it is to predict future market movements. This is why we work with clients to choose a target stock allocation that they can be comfortable with and that allows them to reach their goals. If the stock and bond target get out of whack, we rebalance back to the original stock target. It is one of the major tenets of our portfolio management along with diversification, tax efficiency, and low-cost investing. No one can control what happens in the markets, but we can control how portfolios are positioned and rebalanced.

Secure Act 2.0: Congress just passed an omnibus bill that included the Secure Act 2.0 which will bring many changes to retirement plans, contributions, and Required Minimum Distributions. It is expected that President Biden will sign it into law. As more details emerge, we will provide more insights in future newsletters as to how it affects clients and investors. CNBC Yahoo Finance

Quick Hits for 2023:

  • Movies coming out in 2023: A new Indiana Jones, Wonder Woman, Mission Impossible, Guardian of the Galaxies plus Oppenheimer, and Babylon. There is something for everyone at the movies in 2023: IMDB
  • The 36 Best Books Coming Out in 2023: Today
  • The 23 best places to go in 2023: Conde Nast Traveler
  • Or… the 50 best places to go in 2023: Travel and Leisure
  • The World ahead in 2023: The Economist
  • 49 Cool Gadgets Coming out in 2023: Science Focus

Invest in Yourself in 2023: As Financial Advisors, we have a lot of conversations with clients about investing in the markets. But the principles of investing in the markets can also be applied to how people invest in themselves, which is called human capital. One researcher states there are three major categories of human capital growth to nurture: professional, personal, and health. A lot of investing principles apply to improving those areas such as having a long time horizon, diversifying your goals and not having just one, and building in rewards, or dividends, for achievements. So, kick off the new year by investing in the best investment you know – yourself! WSJ

Quote for the New Year: Nothing is predestined. The obstacles of your past can become the gateways that lead to new beginnings." Richard Blum

Bonus Quote: “Don’t live the same year 75 times and call it a life.” Robin Sharma

Have a very Happy New Year and we look forward to working with you in 2023!!!

Thank you for reading RSWA Financial Advisor Insights! We welcome feedback and please forward this to a friend! Be well, take care, and stay safe!


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