It’s clear that 2022 was a significant negative year for US and world markets. The S&P 500, Dow Jones Industrial Average, and Russell 2000 had annual losses of 18.44%, 8.78%, and 20.44% respectively. We haven’t seen steeper declines since the recession of 2008. Tech stocks were some of the hardest hit. The Nasdaq, which measures the performance of thousands of tech-heavy companies, fell 32.5% in 2022. Whether international or US, large or small, value or growth, losses were across the board.
Russell 1000 Value Index: -7.54%
Russell 1000 Growth Index: -29.26%
MSCI World Index (excluding US): -14.29%
MSCI Small Cap: -21.22%
It has been rare for fixed income to end the year in the negative, but even that was not immune to the downturn.
Long Term US Treasury Bond: -29.26%.
Barclays 1-5 Year Bond: -5.56%
Barclays Intermediate 1-10 Year Bond: -9.10%
Negative years like 2022 often show us the chaos and poor choices that come with economic decline. An “experienced” investor might have attempted to predict the future and invested only in the ever-reliable tech stocks. Now down over 30%, he is likely to yield to emotions and sell, only to invest what’s left of his assets to his next great “prediction.”
In my opinion, no matter how much research or foresight one aspires to have, no one can predict future market conditions. A wise alternative is to have a truly balanced portfolio that invests in thousands of stocks of all categories. While certain industries tanked in the market, it will not have a strong effect on a portfolio that is counter balanced other industries that only experienced a slight dip this year. By investing in every category, negative years like this one are relatively much less severe than general market conditions.
2022 Returns
US Stocks
Generic Index-S&P 500: -18.11% Vs. Matson Money US Equity Fund: -10.35%
International Stocks
Generic Index-MSCI World Index: -14.29% Vs. Matson Money International Equity Fund: -10.51%
Fixed Income
Generic Index-Bloomberg US Gov’t/Credit Int: -8.23% Vs. Matson Money Fixed Income Fund: -6.52%
While red years like 2022 may be cause for discouragement, they are not to be unexpected. With a long-term approach and emotional fortitude, a truly wise investor would recognize that for every market downturn, comes stronger returns in the next few years that outweigh the losses.
By Jimmy Hancock
References
- Matson Money. “Account Statement.” Letter to James Hancock. 15 Jan. 2023. MS.