2022 has been a bust from almost the very beginning of the year. Most telling has been the almost total lack of diversifying positions helping to smooth performance. For example, bonds have performed almost as badly as stocks. There has been no “zig” to offset the zag!
I have shown charts all year long showing the path of all major asset classes trending down. The S&P 500 (IVV) hit a new low for the year yesterday, down -21.06%, while core bonds (AGG) were down -12.52%. Naïve diversified portfolios tracked down in a similar fashion with the iShares Core Growth (AOR) ETF down -16.96% and the iShares Core Moderate (AOM) ETF down -15.51%! No respite for the weary!
The causes for the weak capital market performance can be tracked to several things all occurring at the same time. The external effects of the Russia/Ukraine war are most significant with impacts on oil and grain/food prices and the consequent impacts on inflation and global supply and demand. Also, thought leaders point towards the lagged effect of excessive fiscal stimulus and Fed easy money policy in the wake of the global pandemic as another contributing factor to high inflation; with the Fed now “tightening” to try to slow the economy and quell inflation. Again, with the consequent potential impact on economic growth and corporate earnings, we are seeing stock valuations and prices drop.
As bad as it has been, if you have a long time horizon (10 plus years) and capacity for risk (employed, with no need to tap your investments), history shows that “sitting tight” will reward the patient investor. No guarantees, of course!