Let me be the first to say, THANK GOD 2022 is over. That was a painful 365 days to be an investor. 2022 will go down as the 7th worst year since the 1920s for the stock market, and the 3rd worst year for a 60/40 portfolio ever (only eclipsed by the Great Depression). Inflation was high, the Fed actively tried to slow the economy, and formerly high-flying Tech stocks came down to Earth (are we going to do this every few decades?).
Let’s focus on the question that really matters: Now what? Where do we go from here and will 2023 be kinder to us?
First, let’s lean into a few evidence-based insights:
- Back-to-back negative years are super rare. From 1928 to 2021, it’s only happened to the stock market 8 times (and 5 of those were pre-WW2).
- Stocks and bonds have NEVER both been down for two consecutive years. (Both were down last year, which was itself a rarity.)
- Since the end of WW2, the stock market has never posted a negative return for the 12-month period following a midterm election (hat tip to my friends at Strategas)
So a few things are in our favor when we look back at historical statistics—but again, no one knows the future. 2000 was a terrible year for the markets, and then the next year the U.S. was hit with a terrorist attack that deepened and lengthened that downturn.We can hope 2023 doesn’t hold anything that horrific in store, but there will always be variables that no one can foresee. Instead of handwringing about that, let’s focus on these 5 things:
- Emphasize what’s in your control – None of what you see on TV, or what the market does every day, is in your control. If 2022 left you feeling helpless, don’t let 2023 do it to you too. Focus on your savings and spending exclusively, and—trust me on this—WATCH LESS NEWS.
- Survive the day to day – “Think long-term” is something you hear all the time, and while it’s absolutely the right advice, you won’t reap the benefits of long-term growth if you can’t survive the day to day. If 2023 is another bad year, are you equipped financially to survive without selling any investments?
- Learn from the past, but don’t live there emotionally – Everyone hates to lose money but try not to dwell on it. Instead, learn from how it made you feel. Write down how you felt and what decisions you made. With the benefit of hindsight, which actions would you repeat in 2023 and which would you avoid?
- Play your own game – Try not to get caught up on what your neighbor or your friend at the club is doing. Charlie Munger said, “the world is not driven by Greed, it’s driven by Envy.” Don’t get caught chasing fads and stocks you don’t understand because some random person said they made a bunch of money on tech options. Don’t let envy consume you.
- Live – This is what I most want you to take away. No matter what happens in the world or in the stock market, no matter what your statement balance is or how far you are from your high-water mark, you must live.
2022 was rough and we know 2023 won’t be perfect either. No life is perfect, no portfolio is perfect, no plan is perfect. If you wait for the right moment to be happy, if you obsess over a number, you will miss what’s so special about being here.
Look up at the stars, laugh with a friend, lock eyes with someone you love. Help a colleague in need, dream big, dance, drive until the scenery changes.
My plea to you, as we take another trip around the sun, is don’t forget to live.
Bull and Baird is not meant to be a complete analysis of every material fact regarding any company, industry or security, does not take into account the financial objectives of particular client and should not be relied upon as the basis for any investment decision. The opinions expressed here reflect the author’s judgment at the date of publication and is subject to change. The information has been obtained from sources considered to be reliable, but it is not guaranteed to be accurate. Past performance is not a guarantee of future results. For investment advice specific to your situation, or for additional information, please contact your Baird Financial Advisor.