3 Key Areas for Investors To Focus on in 2023

I think we can all agree on one thing: investing is hard.

Not necessarily in a physically painful way – like stepping on a lego in the middle of the night. But emotionally. It is just tough at times. And 2022 was a great reminder. Before we go further, we would like to point out that our clients have done an excellent job of being disciplined investors with a long-term focus. So, if you are cool, calm, and collected after 2022, there’s no need to keep reading – carry on as you were! If you need a pep-talk or a little context and clarity – this was written with care just for you.

In 2022, the S&P 500 was down -19.4%. Of course, the S&P 500 is just one measuring stick (arguably the most widely used as it represents the 500 largest US companies). But when you look around at other stock indexes, the reality is that there wasn’t really anywhere to hide in 2022:

 

Nasdaq		-33.1%
Small Cap Index		-21.5%
International Index		-20.0%

 

 

 

 

 

The same held true for the bond market:

 

U.S. Aggregate Bond Index		-13.01%
U.S. 30-Year Treasury Index		-31.00%
U.S. Treasury Bond Index		-10.70%

 

 

 

 

Normally, when stocks struggle, bonds typically hold their value or improve in value and vice versa. Think of a teeter-totter – when one side goes up, the other goes down. This traditionally helps balance a client’s portfolio. In 2022, the teeter-totter bent for the first time in a really really long time. In fact, when you analyze the returns of S&P 500 and the bond market together, we haven’t seen a period this bad since 1871. That’s not a typo. 1871. As in 152 years ago. Little perspective here – Orville Wright of the “Wright Brothers” was born in 1871.

TRPG has been giving clients advice for nearly two decades and it never ceases to amaze us how many “experts” will forecast what the market is going to do for the year. At the beginning of 2022, the Wall Street (ie, Bank of America, Goldman Sachs, JP Morgan, Morgan Stanley, Wells Fargo, UBS…etc.) consensus was that the S&P 500 would reach 4,909 at the end of 2022 – implying the market would be up 4.9%!

Reality check: The S&P 500 ended up closing at 3,839. Down -19.4% for 2022.

Check out that list and notice all those pedigreed firms! However, let’s pick on Goldman Sachs as a representative for all of them. Now keep in mind that Goldman (like many others) is filled with some of the brightest minds you could find anywhere. They only hire 3% of the 267,000 average job applications they receive each year. The men and women employed there have advanced degrees from some of the greatest schools and institutions on planet Earth.

Goldman Sachs started off 2022, predicting the market would close at 5,100 (up 7%) by the end of 2022. Then they tapped the breaks, and on March 31st, they revised it to 4,700 to end 2022. And then, to add a good scare to everyone, on June 30th, they predicted a close of 3,400 to end 2022. So what was the outcome? Again, the S&P 500 ended up closing the year at 3839 (versus their June 30th prediction of 3,400). They were wrong in every single forecast. Every. Time.

So, how do you make sense of any of these investment predictions? Well, let’s address the “financial media” before continuing. The talking heads on TV (like Jim Cramer screaming about individual stocks to buy/sell), Yahoo Finance, and internet newsletters aren’t giving advice…they are selling advertisements by way of fear or “forecasts.” They are designed to create emotion. The longer you look at the screen, the more advertising revenue they make. Don’t forget that!

Now, where does that leave you as an investor after a year like 2022? For some, it’s a feeling of uncertainty, and for others, a lack of control. Here are three areas to focus on moving into 2023:

1. Acknowledge you can’t time the market.

The temptation to pay attention to the “financial media” and act on it can wear on anyone. As we discussed above, not even some of the brightest minds can make accurate predictions. In fact, if you were an investor in 2008, check this out:

This chart above is what would have happened in September of 2008 if you tried to time the market by selling your investments after a 20% decline (scared that it was going to go lower). The yellow line shows what would happen if you sold and left your money in cash for the next 13 years. The red line shows what would have happened if you sold and said to yourself, “I’m going to wait until things look better,” and then reinvested one year later. And the blue line shows what would have happened if you stuck to your plan and stayed invested. The outcomes are vastly different. And while you might have stuck it out, make no mistake, someone else didn’t, and they paid an unrecoverable price.

The unforeseen and indeed unforeseeable economic, market, political, and geopolitical chaos of the three years since the onset of the pandemic demonstrated conclusively that the economy can never be consistently forecast nor the market consistently timed.
 

2. Focus on your plan.

At TRPG, every client has a beautifully constructed plan*. The plan has been backtested to take into account world wars, out-of-control inflation of the 1970s, civil rights riots, Democrat and Republican leadership – you name it – 120 years of good and bad events have been factored into your probability of success. 2022 fits the profile for the various historical events we’ve factored into your plan.

That plan takes into account both your short-term and long-term needs, and your asset management is constructed around meeting those needs. The plan doesn’t try to time the market – nor does it have that assumption built into it. You (we) are long-term, goal-focused, plan-driven equity investors. We believe that lifetime investment success comes from acting continuously on our plan. Likewise, we believe substandard returns and even lifetime investment failure come from reacting to current events.

Although this may be hard to remember every time the market gyrates (and financial journalism shrieks) over some meaningless monthly economic datum or other, we (you and us) are not investing in the macroeconomy. Our portfolios largely consist of the ownership of enduringly successful companies—businesses that are even now refining their strategies opportunistically to meet the needs and wants of an eight billion person world.

If your plans have changed, it’s time to revisit your plan and with it your investment strategy. If your plans haven’t changed, it’s important to remember that the well-diversified investor has an extremely high probability of recovering and continuing on to all-new highs. 

3. Understand how quickly things can improve.

Our clients run the gambit on age. Some are in their 50s, 60s, 70s, and 80+. In each of those age segments, there are clients who will think, “I don’t have time for my account to recover.” Let’s take a peek at what historically happens after a bad year (or two) in the market:

This chart shows just how quickly things can recover one year, three years, and five years later – depending on the depth of the market decline. The key to a recovery is giving yourself the ability to participate, and you can’t do that sitting in cash (or timing the market – see #1!). To be a truly great investor, you need two key behaviors: faith and patience.

It seems faith is in scarce supply these days, but this is the time to recognize that America has been in difficult times in the past, and it has endured. As for patience, in a world where many of us might yell at a microwave because it’s taking too long to pop the popcorn, we are slowly being conditioned to expect immediate results. Investing doesn’t work that way, and as soon as we acknowledge this the sooner, we find peace with the process of being an investor. Therefore we believe that the most reliable way to capture the full return of equities is to ride out their frequent but historically always temporary declines.

That said, let’s just pretend that you are still worried. Take a look at this:

The chart on the left addresses the stock market. The chart on the right looks at the bond market. Note the far right bar in each chart. It addresses the probability of a consecutive down year for stocks and bonds. At this very moment in time, the odds are in favor of a long-term goal-focused investor!

In 2023 keep your focus on these three areas! And should you need additional clarification on any of the points above, your Wealth Manager stands ready to help you out! Keep the faith and patience!

In closing, we thought we’d toss out a few stats to highlight what TRPG did in 2022 to be proactive and create value for all of our clients:

*If you happen to be a client that hasn’t updated their plan in a while or if your Wealth Manager has been bugging you to get a plan in place, now is the time to set an appointment!