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Why 2022 Was the Worst Year For Investors

Why 2022 Was the Worst Year for Investors
Photo by Joe Sohm

From Peter Reagan at Birch Gold Group

We’re in for a rough start to 2023. Still-hot inflation, high mortgage rates, and rising personal debt can slow down even the most stable economy. (Let alone a volatile, teetering and still-frothy economy.)

Which brings us to today. Optimistic investors are hoping for a strong finish to this year, in the form of an end-of-year rise in stock prices. The so-called Santa Claus rally has been a feature of equities markets for a long time.

This year, that wasn’t in the cards.

“Ho ho oh no!”

Reuters recently described investors whose wishes for a holiday rally made it sound like a kind of financial Groundhog Day (the holiday, not the movie – which is excellent):

Friday is this year’s start date for this rally named after Santa Claus – if it happens. It will only be clear around the second trading day of 2023.

The phenomenon has lifted the S&P 500 an average of 1.3% since 1969, according to the Stock Trader’s Almanac. A December without a Santa rally has been followed by a weaker-than-average year, data from LPL Financial going back to 1950 showed.

The strategists at DataTrek agree: “The lack of a ‘Santa Claus rally’ this month, with a ‘lump of coal selloff’ in its place, is a troubling sign about 2023 US equity returns.”

Make sense? If Santa sees his shadow and flees back to the North Pole, stock bulls will likely have a lean year.

Of course it sounds silly! Lots of people believe silly things.

This means we can only be sure about the result of a holiday rally on January 4th. If Santa brings the equities market the gift it wants, would, according to the theory, bring a stronger-than-average year for stocks.

After 2022, markets still have a long hill to climb – even with Santa giving them a push.

2022 by the numbers

You already know 2022 was a rough year – here’s just how rough…

  • The Dow Jones Industrial Average, representing “blue-chip” stocks, is down a little over 9% — which sounds bad, until you remember it started the fourth quarter down over 20%
  • The S&P 500, the largest 500 publicly-traded companies in the U.S. dropped just a little less than 20%
  • The NASDAQ, the tech-heavy index of high-growth stocks, plunged over 33%
  • The broad bond market (I use the Vanguard Total Bond Market Index Fund, BND as a proxy) lost over 15% of its value – remember, these are supposed to be conservative investments!
  • Treasury bonds (proxy Vanguard Intermediate-term Treasury Index, VGIT which tracks 3 to 10-year durations) has only a 12% loss – and again, Treasury bonds are the safest-of-the-safe, AAA-rated investments!

The standard conservative investment, recommended by financial advisors, magazines and the Internet for decades, the 60/40 stocks/bonds portfolio had either its worst returns in a century, its worst year in U.S. history or its worst year ever, depending on your source.

No wonder people are hoping for a Santa Claus rally! Those folks who listened to “rule of thumb” wisdom and followed the 60/40 investing guidelines lost 16.5% this year. It’s gotten so bad that there have been dozens of articles in financial media with titles like:

(That last one, interestingly, recommends a 33% allocation to “alternative investments.”)

Listen: it’s going to take more than “the worst year ever” to finally nail the 60/40 portfolio into its coffin for good – in the more naïve corners of financial advice, at least.

But I’ll tell you this for free: for individual American families, just normal folks saving money for their futures, for a whole lot of them, their “conservative” and “safe” 60/40 strategy is dead and buried.

So what takes its place?

Two strategies to consider in 2023

First, we’ll turn to the experts at Wealth Management Magazine. They analyzed the performance of the seven top-performing alternative assets to see which was historically the most beneficial for 60/40 portfolio diversification. (I discussed their findings previously at greater length.)

Here are the highlights:

  • Gold was among the top five performing alternatives, which included commodities, options funds, real estate and energy MLPs
  • Gold had an average of 7.69% per year and a 51.51% 5-year cumulative return
  • Gold’s return on investment lagged just behind real estate and options. (Remember, though, high returns aren’t why most people buy gold!)
  • Gold had the lowest volatility, the highest diversification ratio and the highest Sharpe ratio

In summary, they reported:

Gold, for much of the period, was the yin to the stock market’s yang, producing that most-sought after of portfolio prizes, a smooth ride.

That’s strong praise!

Second, the 33/33/33 allocation approach mentioned earlier. It’s pretty straight-forward: 33% equities, 33% bonds and 33% “alternative investments.”

Even after such a rough year in the markets, remember, stocks and bonds have their good times, too! Diversification is a vital component of that “smooth ride” we mentioned earlier.

If you want to test out how diversifying your savings with gold would’ve worked out in the past, feel free to investigate with this tool we built:

How Does Gold Allocation Affect Investments?
Historical asset allocation calculator – from 2000 to present


Birch Gold Group offers no opinions or advice regarding how much, if any, of a customer’s investment portfolio, retirement or otherwise, should be allocated to precious metals. The projections to be displayed are based on historical performance net of any transaction fees/costs charged. Such fees/costs will impact the overall rate of return, but are not factored into the performance. The performance figures for conventional stock and bond investments do not include dividends or dividend reinvestment. Past performance is not a guarantee of future returns and Birch Gold Group makes no representation or guarantees regarding precious metals or other investment performance.
How Does Gold Allocation Affect Investments?
Historical asset allocation calculator – from 2000 to present
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*Results based on historical market data from 2000-present. Remaining portion of portfolio split 60/40 between stocks represented by the S&P 500 and bonds represented by U.S. 10-year Treasury bonds. Birch Gold Group offers no opinions or advice regarding how much, if any, of a customer’s investment portfolio, retirement or otherwise, should be allocated to precious metals or any other investment, such as stocks or bonds.
The provided calculation is based on the spot price of gold as reported on Macrotrends for the period indicated. Coin/bar prices may increase or decrease in tandem with spot prices, but may not depending on the type of coin/bar and supply/demand factors. The fact that spot price increase does not mean that physical precious metals will increase a similar amount or at all. The projections displayed are based on historical performance net of any transaction fees/costs. Such fees/costs would impact the overall rate of return, but are not factored into the performance.
The performance figures for bond investments do not include dividends or dividend reinvestment. Past performance is not a guarantee of future returns and Birch Gold Group makes no representation or guarantees regarding precious metals or other investment performance.
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Ideally, you’ll find an asset allocation that balances risks and rewards to meet your needs.

Because if you find yourself hoping for Santa Claus to swoop in on the last trading day of the year and save you, I think you might need to rethink your retirement savings plan. If that new plan includes gold, we can help.

2022, bonds, diversification, Featured, portfolio, retirement savings, stock market
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