Lessons from the Markets in 2022

Every year the markets provide us with lessons on prudent investment strategies. With great frequency markets offer remedial courses, covering lessons they taught in previous years. That’s why one of my favorite sayings is that there’s nothing new in investing, only investment history you don’t know. Investors were provided with a dozen lessons in 2022 (and a bonus one in the postscript). Many of them are repeats from prior years. Unfortunately, too many investors fail to learn them – they keep making the same errors.

Lesson 1: Just because something hasn’t happened doesn’t mean it can’t or won’t

For many investors, 2022 was a particularly difficult year because it was the first time that both the S&P 500 Index, which lost 18.1%, and long-term Treasury bonds (20-year maturity), which lost 26.1%, experienced double-digit declines. In fact, it was only the third year – 2009 and 2013 were the other two – when long-term Treasury securities produced double-digit losses. And in 2009 the S&P 500 returned 26.5%, and in 2013 it returned 32.4%.

The closest we had come previously to both producing double-digit losses was in 1969, when the S&P 500 lost 8.5% and long-term Treasury bonds lost 5.1%. While the S&P 500 lost 18.1% in 2022 and long-term Treasuries lost 26.1%, resulting in a portfolio loss of 20.3%, it was not the worst year for the “traditional” 60/40 portfolio. That was in 1937, when the S&P 500 lost 35% and long-term Treasury bonds gained just 0.2%, resulting in a portfolio return of -21%.