How bad was the first half of 2022? Pretty bad. I’m not even referring to the war in Ukraine, the surge in COVID infections, supply-chain disruptions or the growing number of gun deaths in the U.S.
I’m talking, of course, about the capital markets.
The negative 21% performance of the Standard & Poor’s 500 during the six-month period ending June 30 ranks among the worst six-month drops going back almost a century. Only 2008, the 2001 dot-com crash, World War II and the Depression years saw bigger six-month losses.
As if that weren’t bad enough, bond market performance was even more painful, relatively speaking. Five-year Treasuries were down 6.4%, their third-worst six-month return ever. (And the second-worst was the six-month period ending in May, just one month earlier.) Intermediate-term corporate bonds lost more than 10%.
The combination of historically extreme negative returns for the two largest asset classes caused virtually all investors to suffer over the first half of this year. More than 98% of all six-month periods since 1926 provided better returns than a diversified portfolio did in 2022.
Is there any good news? If you’re still employed and saving some of your earnings, you’ll be buying more stocks, bonds and funds at lower prices. This is the time when dollar cost averaging works very well. And if you’ve been invested for the last five or 10 years, your portfolio should still be considerably larger than it was when you started.
It is not possible to reap the benefits of investing in anything that involves risk (stocks, bonds, real estate, commodities, artwork, whatever) without experiencing price drops periodically. But it’s those very declines that set the stage for subsequent rallies. And according to Ben Carlson at Ritholtz Wealth Management, stock market returns since 1928 during periods of falling inflation have significantly exceeded returns when inflation has been rising (16.5% vs. 7.1%).
If inflation can be tamed within the next year, then we could have two things to look forward to: stable prices plus expanding investment portfolios. Stay tuned.
Los Altos resident Artie Green is a Certified Financial Planner and founder of Cognizant Wealth Advisors. For more information, visit cognizantwealth.com.
