Assessing 2022, pretty much all asset classes posted declines. A few exceptions were among the commodity space and cash. Things like oil and actual cash didn’tgo down. If you had a whole life insurance policy it made the positive list. That’s about it. On the downside, pretty much everything else. The more aggressive the asset, the worst it fared. Crypto, private equity, SPAC’s, and momentum/theme equity did exceptionally bad. Illiquid real estate or other economically sensitive assets not only did poorly, but in many cases suffer from liquidity problems. The FOMO (fear of missing out) crowd got beaten up badly as those things that went up like a rocket came down like a stick.
Looking back, the reason(s) for the environment have also been discussed ad nauseum. The root cause was the over liquification of the global economy to deal with Covid. The derivative solution is the Federal Reserve raising interest rates (which is essentially increasing the cost of money). The result is a slowdown in the economy during the transition. A slow down predicted by the markets and following through in the real-world data. The early recessionary signals are blinking which was the outcome desired. Because money (capital) is used in all things business, its cost going up has a negative economic impact. Basic stuff that tends to get forgotten sometimes.
A few take aways from 2022 come into focus. Some “new paradigms” shall we say. First and foremost, we are reminded that all things cycle. Growth doesn’t go on forever. Stocks (like trees) don’t grow to the sky. Investments are actual investing and NOT lottery tickets. Diversification is still a wise strategy, even if it means “losing less” in the short term. Finally, have a financial plan and structure your portfolio to meet those needs, both long and short term. Those paradigms are time tested and real.
Looking forward to 2023, there is much reason for optimism. Yeah, I know this entire ranting has been somewhat negative and a bit dour, but that’s in the past. Taking the glass half full route, the heavy lifting has been done. The Fed has done a lot of work in 2022 to drain the pool so to speak. They have a bit more to do, but the bulk is behind us. I do expect the general economy to continue to weaken and full-on recession to be the theme of 2023, but the asset markets have priced it in. As we have opined in previous rantings, I do expect a return to normalcy in 2023 with inflation cooling and assets being less volatile. For savers, there is FINALLY some real alternative. Current Bank CD rates for a one-year note are over 4 percent. Hasn’t been to this level since 2001 and gives people a place to park cash. Same with most conservative fixed income alternatives. Back to rates and returns that one would call normal in the real world. For longer term investors, the 2022 declines adjusted the equity markets back to a realistic place. One that sets up better for long term investors vs 2022 and its froth and high valuations. Yes, it’s been a rough 2022 but the forward look is a new one and one would argue a better one long term.
As always, thanks for allowing us to be a part of your financial lives. Don’t hesitate to reach out at any time and for any reason as we work for you. It’s a responsibility we don’t take lightly and strive to earn every day.
Regards,
Ed, Frank, Tammy
Edward Stiles
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Disclaimer: The term markets, market, S&P 500, or any other reference to financial markets are notional concepts and not specific investment advice or suggestion. This article does not constitute specific investment advice, and none is implied or inferred. This article is for clients of Retirement Capital Advisors only. Investing entails risk of loss of principal and no guarantee of returns are inferred or implied