Now we’re in 2023, we can look back at 2022 and say: it’s not been a good year for investors.
2022 was the worst year for the US stock market since 2008: the market fell more than 20%.
What does this mean for 2023? Should we still be investing or will we continue losing money?
Bear markets (where the market falls below 20%) have in history happened every 3-5 years.
That means bear markets are to be expected and are a normal part of long term investing.
Over the last 5 years (2018-2022), within 4 of those years, the stock market has been rising.
Every single bear market in history has been followed by a bull market, without exception.
In this article, I give a breakdown of how my portfolio did compared to the US market in 2022.
I also give a brief breakdown of how my portfolio did over the last 5 years compared to 2022.
Finally, I discuss what to expect over the next few years and where to find more information.
How Did we Do in 2022?
The image above shows how the Vanguard Total Stock Market (US stock market) did in 2022.
As you can see, if you invested in this fund, your portfolio would have dropped by over 20%.
This is quite rare, considering that in the year prior (2021), the US stock market rose by 24%.
This is why if you only started investing last year, you might think that investing doesn’t work.
How did my portfolio (Vanguard FTSE Developed World ex-UK Index fund) perform in 2022?
As you can see, my portfolio (which is only invested in this fund) only fell by 8.3% in 2022.
Why is that? How did my own portfolio only fall by 8% when other portfolios fell by over 20%?
The reason for this is the fund I’m invested in is a global fund, not just the US stock market.
Although a large portion of the fund is in the US, the other countries didn’t perform as badly.
Therefore, although my portfolio did fall a bit last year, it didn’t fall as much as it could have.
How Did we Do in Previous Years?
This graph shows how the Vanguard FTSE Developed World ex UK Index Fund did in 2021.
As you can see, the fund performed as we would expected it to: it grew by 22.27% in a year.
However it did take a very dramatic dip in September: it fell by a shocking 98.83% in one day!
Fortunately, this did not last very long; it bounced back up the next day to a growth of 17.27%.
Even with the covid uncertainty, investors would have been happy with 2021’s performance.
The graph shows how this index fund did in 2020; the year of covid outbreaks and lockdowns.
You would think 2020’s performance would have been similar to 2022; but in fact, far from it.
In 2020, the FTSE Developed World Ex UK Index Fund grew by 12.40% that year despite Covid.
The fund did not perform as well as 2021, but it certainly performed much better than 2022.
If we look at 2020-2022, only 2022 fell in performance. But how did we do in the last 5 years?
As you can see in the graph, 2019 was another strong year; 22.8% growth in a single year.
This was even better than the performance in 2021, which we would expect pre-covid times.
It was a very volatile year, with stocks bouncing up and down throughout the year like 2022.
However, if we were to draw a trend line in 2019, we would clearly see an upward trajectory.
Therefore, out of the 4 years in this fund so far (2019-2022), 2022 showed the only decline.
This graph shows how the index fund performed in 2018; as you can see the fund fell by 3.2%.
Finally, another year in which the fund fell; but it was only by 3.2% compared to 8% in 2022.
So of the last 5 years of investing in this fund, in 3 of those years you would have had growth.
If we take the average of those past 5 years (2018-2022), we’re looking at a growth of 9.19%.
That’s almost an average of 10% growth every year, which is not bad at all for retail investors.
Bear Markets are a Part of Investing
As mentioned, historically bear markets (falling below 20%) have happened every 3–5 years.
In 2022, if you were invested in VTI for example, you’d have certainly witnessed a bull market.
In other words, you would have seen your portfolio fall by 22.0%, which is certainly not easy.
The good news is, if you’re a long term investor, bear markets are just a part of the journey.
Knowing this should reassure you; there’s nothing to do than to keep investing and be patient.
If you invested in a fund like the FTSE Developed World, you wouldn’t have had a bull market!
In 2022, this fund (and other similar funds) only experienced a drop of 8.3% compared to 20%.
This is a big deal; this means your portfolio is strong enough to weather any financial storm.
As I mentioned, the main reason for this is that my portfolio is invested in countries globally.
Even if one nation was to do badly in a year, the countries might be able to balance the drops.
What to Expect in 2023 and Beyond?
Fun fact: every bear market in US history has been followed by a bull market, no exception.
That is great and quite reassuring: we don’t know when it will take place, but we know it will.
But what’s the best way to beat a bear market? Is by investing in a globally diversified fund.
As mentioned, I didn’t experience a decline of more than 8.3% compared to other index funds.
So in 2023, if you’re not already diversified, I would invest in a globally diversified index fund.
To find out more about investing in diversified index funds, check out the book Unshakeable.
In this book, Tony Robbins talks about everything you need to know about diversified funds.
If you want to find out more about the Vanguard FTSE Developed World, check out my article.
In it, I compare it to the Vanguard FTSE Global All Cap, and talk about which I think is better.
How did your portfolio perform in 2022? Please feel free to share in the comments below!
