2022: what lessons have we learned?

2022 has been a whirlwind. After two years of having our lives turned upside down by Covid-19, it's almost a relief to go back to the usual pre-March 2020 worries.

However there’s nothing ‘usual’ about those worries. At the moment the news is focusing on the cost-of-living-crisis, inflation and foreign wars. With the very cold weather, widespread industrial strikes and potential travel chaos over Christmas, the difficulties keep coming. This has led to the tabloids to label the current period as ‘the second winter of discontent’ echoing Jim Callaghan’s Labour crisis of winter 1978-79.

In financial terms, 2022 saw the second Bear market in two years. These market declines of more than 20% tend to happen every four years, on average. And, although this year's one wasn't as sharp as that in 2020, the protracted decline of 25% was a long one. It played out over ten months, lasting from January until October.

And it's not over yet – we're still in negative territory. Despite this current uncertainty, it's not time to panic. We have every confidence that the markets will continue to reward those who invest and stay invested. It's just a matter of being patient.

So, what big lessons are we taking with us into 2023?

1. Trends come and go

Global obsessions with one topic isn't new. However, thanks to modern technology, it's no longer just World Cups and World Wars we unite in obsessing over. Now, those who control the media narrative cycle us through one fashionable outrage after another.

Whether it's what members of the extended Royal Family are up to, or political faux pas, it's unlikely we'll remember many of these headlines in five years’ time. But, because we live in such a connected world, many of us can't help but get caught up in the stream of outrage.

It's the same with investments. Short-term concerns, while significant in the present, are not the sorts of things we should be basing our long-term decisions on.

The lesson: 2023 will bring new events that will dictate our lives – and the financial markets –for a few months, and then disappear. It's important to see them for the distraction that they are – and to focus on the plan. I wrote about this using the analogy of F1 racing back in February: “Like the petrol, your portfolio is simply the fuel that propels your plan forward.”

2. 'Tried and tested' trumps 'new and exciting'

Similar to the 'current thing', there's almost always a trendy investment idea. For the past few years, this has been the concept of digital money. You can hardly turn around without hearing about cryptocurrency, NFTs (non-fungible tokens), and decentralised finance.

While this started as a small scene within the techy set, it's now mainstream. Even celebrities and prime time TV shows are getting in on the act. Combined with the illusion of regulation and an influx of 'smart' venture capital money, many regular investors felt a sense of FOMO. Once they jumped in, the perceived value jumped up even more.

Of course new ideas deserve consideration, rather than simply writing them off. But, when it comes to finances, these new ideas need to clear a very high bar. Especially if you're planning to allocate a big chunk of hard-earned money to them.

With digital money, that time hasn't come yet.

The space is full of stories of failures of governance and fraud. That's why we feel confident in saying 'no'.

Meanwhile, the things that have always worked continue to work. They plod along reliably, slowly and steadfastly growing the wealth of those with the patience and discipline to wait for a good return.

The lesson: If something sounds too good to be true – or offers the hope of getting rich quick – steer clear. We touched on this back in May in a piece on ‘The curse of the next big thing’: “Stellar investments look obvious in hindsight. But in reality, you’re looking at a series of Euro millions tickets.”

Think like a local, not a tourist

When you're planning a holiday, weather is one of the biggest concerns. Seasonal patterns – like rain – can easily ruin a short trip. While tourists tend to avoid these less pleasant periods, locals understand that seasons change. They're living there for the long haul. They know if they can stick out a harsh winter, a pleasant summer is right around the corner.

This is true in investment, as well. Smart investors understand that even the most diverse portfolio will experience volatility and declines along with the market's whims. But they're there for the long haul, and good times will come again.

2023 is likely to be the first calendar year of negative returns since 2018. But, if you approach it as a local, rather than a tourist, you'll have the mindset to accept winter safe in the knowledge that spring will come again.

The lesson: Financial seasons change. Don't give up on the destination, bring an umbrella. Take a look at this post about my client Peter, whose portfolio went from £50,000 to £350,000 in 2008, but is now worth £300,000 and my advice to him. 

Here's to another year!

We hope this helps you to feel positive about the year ahead.

Finally, we’d like to take this moment to thank you for letting us offer advice to you and your family over the past year.

Have a safe, happy holiday and we look forward to seeing you in 2023!