2022 Year in Review

January 10th, 2023

2022 was one of the most challenging years for markets in over a decade. After years of easy monetary policy with low interest rates as well as generous fiscal policy in the form of stimulus checks, it was finally time to for markets to cool down.

We expect stocks to have volatility and are ready for the down years when they happen. However, most people aren’t prepared for those types of swings in bonds, which is exactly how things played out last year. 2022 ended up to be the worst year for bonds since 1994 and one of the worst years in history.

The downside in bonds was due to a couple of factors. First was how rapidly rates went up when inflation kept surprising to the upside. Next, rates started at an all-time low near the depths of the COVID crisis and had nowhere to go but up.

The Fed took interest rates from close to 0% to nearly 4.5%, raising interest rates to the highest level since 2007.

The Fed hasn’t hiked rates 4.25% in a single year since the early 1980s after persistently high inflation.       


Stocks also had a challenging year with the Vanguard US Total Stock Market Index falling over 21%. Similarly, International and Emerging Markets stocks also fell around the same amount, even though they were priced much cheaper coming into the start of the year. Both International and EM stocks have a higher return expectation going forward.

Since bonds had such a disastrous year, the classic 60 stocks /40 bonds portfolio suffered more than usual. A typical 60/40 portfolio lost about 15% last year. This was quite an outlier. According to according to The Wall Street Journal, the typical 60/40 portfolio’s extreme losses last year had a probability of occurring only once in every 130 years.


Despite the fact that 60/40 had such a bad run, all was not lost. There were other ways you could have potentially shielded a portfolio from risk such as trend-following funds and an allocation to gold. The First Trust Managed Futures Strategy Fund ETF and Cambria Value and Momentum ETF were both positive on the year. Additionally, gold finished in the green as well despite some swings in the second half of the year.

As you can see, there are many ways to create a diversified portfolio and some may prove to be better than others.

Additionally, tilting to value helped tremendously this year as the high flying growth names started to falter. Below, the Vanguard Dividend Appreciation ETF fared much better than the Vanguard Total Market Index ETF.

Now that a difficult year is in the books, on a positive note, we can look forward to better forward looking returns as we’re now starting from lower prices.

There is quite a spread between valuations on the U.S. and International markets. Vanguard projects that international equities will outperform U.S. equities in the coming decades and value stocks will outperform growth in the U.S.

Finally, it’s crucial to remember that the stock market will inevitably experience ups and downs, and it’s important to stay calm and focused during times of uncertainty.

With all of that said, we don’t believe in a cookie-cutter approach to asset management. Portfolios are custom tailored portfolios to each individual based on their specific needs and goals.

Dealing with stock market volatility can be challenging, but there are several strategies that investors can use to manage their risk and stay focused on their long-term financial goals.

If you’re interested in having someone manage your portfolio or you just want a second option, we’d love to have a conversation.

You can’t invest in an index. This is not investment advice and is an endorsement to buy any individual security.


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