Diazo | Welcome to 2022
by Justin Long, on Jan 03, 2022
Good morning and welcome to 2022. I just wanted to kick off this year by sharing a little bit of information about the last few years.
To be honest the market tends to surprise the majority.
As we have now brought 2021 to a close, we've now had three consecutive years of surprising results.
I want to take just a few moments and review those surprises, while discussing some of the lessons we can learn from them.
Going back to December 2018, we saw the S&P 500 drop by ~20%.
This decline was a surprise at the end of what was a positive year going into the final month, and with it, we saw it turn the year of 2018 negative for the S&P – punctuated with the Christmas Eve "plunge," falling 2.7%.
As you can guess, this caused there to be very few investors who were optimistic heading into the new year.
Despite the bearish sentiment starting 2019...
...the S&P 500 returned 28% in 2019.
With an incredible performance in 2019, none of us had an idea of what 2020 had in store for us.
In 2020 we saw the fastest bear market decline in the history of the S&P 500, falling 34% in a mere 33 days.
With everything going on in the world in March of 2020, a decline was not the surprise – the velocity of the decline is what shocked investors.
But that was not the biggest surprise of the year -
The U.S. stock market bottomed on March 16th.
And even with an intra-year decline of 34%, 2020 brought another surprise with it for everyone – the S&P 500 delivered a positive 18% return for the year, even with a global pandemic still looming large.
Now that brings us to this year. While the majority believed a continued recovery was likely, there were still quite a few surprises in the year.
Now that we have wrapped 2021, we can look back and see where we had some surprises -
- Corporate profit margins – reaching near all-time highs
- GDP – near all-time highs
- Household net worth – near all-time highs
- Interest rates – still near all-time lows
Even with all this positive data for the year, this year has had its struggles with issues from disagreement around vaccinations, relearning the Greek alphabet, the national debt, and the highest inflation in decades.
So here we are.
As I write this, the S&P 500 had closed at a new record high 70 times and is up ~28% for 2021.
While the recovery mentality going into 2021 was a cause for optimism going into the year, the market surprised many to the upside.
The market surprises us most of the time.
There seems to be a common theme for the last three years, and that is, what lies ahead is inherently unknowable...
...regardless of how much we may want to know (or think we know) what is next.
With the start of the New Year the pundits will begin making their rounds over the next month offering their crystal ball prognostications for the year ahead.
This would be something I would advise on ignoring =)
So, let’s talk about three lessons learned over the last few years that we should keep in mind as we consider the years to come.
1.) A sound investment portfolio must be supported by a financial blueprint.
It is what can help us stay the course -- especially when things get topsy turvy.
I have always felt that success financially starts with a plan.
2.) Success in investing comes from discipline and patience.
Why both? Because to be honest I'm not sure where one stops and the other begins.
That being said I am sure that both are needed to reach our financial goals.
Given the last few years we've had plenty of opportunities to capitulate, panic, over and under react.
There have also been chances to succumb to greed as people got paper rich in various manias.
It would have been impossible to stand by our financial plan without a healthy dose of discipline and patience.
Inevitably there will be plenty of these similar situations in the future.
Therefore, we plan.
3.) We cannot know the future; however, we really don’t need to in order to accomplish our financial objectives.
As you can imagine, people frequently ask me what I think the markets will do next.
My answer to that is, I'd love to know that, but I don't and never will because it's not possible.
The good news is that we don't need to know.
To adapt a quote from E.L. Doctorow for our purposes here:
"Financial planning is like driving a car at night: you can never see further than your headlights, but you can make the whole trip that way."
This makes a lot of sense to me.
The last three years have been quite good for our financial plans despite more surprises than we could have imagined.
I'm sure there will be many more to come.
As the calendar turns from 2021 into 2022, please know that I am here for you through it all, and I appreciate the opportunity to be a partner in your success.