Merry Christmas! We are approaching the end of another calendar year, and it has not been an easy one for those with investments. Investors have been reminded that one thing is true: annual investment growth is not guaranteed.
2022 has been a drawn out and long overdue correction for our markets. It is called a correction because stock prices balloon in value for multiple reasons, and now they are in the process of being deflated back to their true fair market value, which is a price that a willing buyer and willing seller can agree upon. Some corrections are brief, and others last longer for reasons that we do not have time to discuss – just know that corrections happen, and we will see more of them in the future.
But this also means we will see more market highs in the future. In fact, positive annual market returns are much more common than negative annual returns. Since 1980, the S&P 500 has finished negative just 10 times – so in the last 42 years, the market has finished positive 76.2% of the time.
The S&P 500 in 2022 will end down, close to 20% – this is not good, and it has caused a lot of pain; but in the three previous years, the S&P 500 finished up 28.88% (2019), 16.26% (2020), and 26.89% (2021).
Another ray of hope is that consecutive years of negative annual returns in the S&P 500 are even more rare. Since 1950, this has only happened twice – 1973-1974 and 2000-2002. I cannot and will not say with certainty that 2023 will finish positive, but ignoring everything else, the historical trends say it will be more likely than not.
I am not trying to downplay, oversimplify, or disregard our current market conditions – it has been ugly and there are no immediate signs or trends to say the storm is over. However, it is times like these that we lean on history to provide some reassurance that we have been here before.
Market Risk is the possibility that an individual will experience losses due to factors that affect the overall market. This is also called Systematic Risk. At Financial Enhancement Group, our portfolio managers work to navigate Unsystematic Risk, which means we work to mitigate controllable risk through portfolio diversification. No matter what you do with your money, you are exposed to risk that can sometimes be uncontrollable – diversification is the best way to limit the damage if/when it comes.
This is why we do not focus heavily on investment returns when we provide advice on how to best invest a family’s money. We focus more on the purpose, time horizon, and tax implications for the investment. These concepts take the market into consideration without allowing it to dominate the decisions that are made in good or bad times.
The most successful investors establish a process and ignore the noise that could lead to impulsive decisions.
Financial Enhancement Group is an SEC Registered Investment Advisor. Securities offered through World Equity Group, Inc. Member FINRA/SIPC. Advisory services can be provided by Financial Enhancement Group (FEG) or World Equity Group. FEG and World Equity Group are separately owned and operated.