Weekend Reading – 2022 Model Portfolio Returns edition
Welcome to a new Weekend Reading edition about 2022 model portfolio returns – I hope you enjoy it.
As usual, before we dive into that subject a bit more, some recent reads on my site as quick reminders:
These are some of our income needs and wants to fulfill in the coming years, including dividend and distribution income to fund budget basics.
We hope to realize those needs and wants brick-by-brick; by accomplishing all these 2023 financial goals.
Weekend Reading – 2022 Model Portfolio Returns edition
Did you say model???
Yes, model portfolio.
Whether you decide to skim the index and hold a few individual stocks (like I do…) or strictly index invest for market-like returns, 2022 was an investing year for the ages – but not really in a good way for many.
Officially, with 2022 in the rearview mirror, 2022 was the worst year for the S&P 500 in more than a decade – losing close to 20% in U.S. dollar terms.
If you were an indexer, had a Canadian bias, and owned one of the more popular low-cost ETFs in Canada like XIU – you did far better. XIU as a proxy for large-cap Canadian stocks was only down about 6.4% for 2022.
To put 2022 into some perspective, the S&P 500 itself hasn’t seen back-to-back down years since the bursting of the dot-com bubble between 2000 and 2002.
That makes 2023 time to be optimistic!
Source: @CharlieBilello – Chief Market Strategist @cpiwealth
Or does it???
With Canadian markets up about 5% for the year, already, you have to wonder if the U.S. history shared above from Charlie is right and folks pointing to a recession might be flat-out wrong in 2023.
Prior to 2022, I was making a few minor adjustments to my portfolio on a hedge that some darker days were coming with borrowing costs going higher to combat rising inflation that was overdue from our Bank of Canada. I was preparing for a recession. So, I wasn’t surprised in 2022 that some experts were calling for a recession in 2023.
Will recession that ever come?
Of course the proof will only be clear in hindsight so until my saving and investing plan tells me otherwise, I’m sticking to it.
On that note, long-term indexers (even though I’m not one of them) got beaten quite up a bit in 2022 but on the flipside, as an asset accumulator of hundreds of stocks, you were probably cheering for lower stock market returns anyhow. Good on you.
In fact, unless something drastically changes…equities have outperformed bonds, currency and inflation around the world over the last 120 years…so that should continue. Sure, we don’t have a 120-year investing timeline in us but the lesson is we can take from such statistics and market history to heart. If investing for the future is like anything of the past, staying invested in common stocks should be a path to wealth building over time.
Especially when 2022 was a dud since you got many of your stocks – cheap!
To review some detailed 2022 model portfolio returns, look no further than Justin Bender’s site for these details. His post was excellent.
Back to some 2023 predictions about where things could go for the U.S. stock market, here are some expert opinions on the S&P 500 value by the end of this year. Tom Lee is probably not correct but again, we’ll see!
What I’ve been thinking about…
- While interest rates will likely rise a bit more, in early 2023 despite peak inflation, has the forward looking stock market already hit rock-bottom yet?
- Now into 2023, with many DIY and institutional investors are already anticipating lower inflation with rising interest rates to taper off, does this mean that smaller rate hikes, and eventually no interest rate hikes in the latter part of 2023 reduces the headwinds our economy faces as the year progresses? This makes now the time to load up on more equities including some more energy sector stocks?
- It was a tough year for growth stocks, like those in the tech sector. Is 2023 tech climbs back?
- Elevated inflation AND rising interest rates have hit some stock market sectors harder than others – but energy still seems to have room to run. Defensive market sectors (that have relatively stable earnings) like consumer staples, utilities and health care—are not down very much even from 2022 pricing. Does this mean we are going to see just a weak economy in 2023 overall?
As you know, the economy is not the stock market but I see relationships between the two. If I was a betting man (and I’m not, but I like predictions for fun all the same!) I would say:
- We might have some stale economic growth in 2023 but not a full-blown recession thanks to very low and sustained unemployment rates.
- Higher interest rates in the ranges they are now – are here to stay for many years ahead.
- The stock market, in terms of total returns for 2023, could have a double-digit year since it is forward looking.
- The energy sector could flourish again in 2023.
What moves are you making in 2023? Or, are you simply staying your course whether that be indexed ETFs or individual stocks or a blend of both?
More Weekend Reading…
Related to what might flourish in 2023 and lessons learned from 2022, Ben Carlson shared 5 lessons from an awful investing year. The punchline, as always, for me is: save and invest a bit like a pessimist but be optimistic long-term. From Ben:
“Last year is a good reminder that downturns are never fun to deal with in the moment, but if you are able to zoom out and keep a long-term mindset, eventually the gains outweigh the losses.”
I enjoyed Dale’s recent Sunday Reads, which said to ‘hold the recession’ in 2023.
Congrats to My Prudent Life blog who deployed putting their TFSA dollars to work.
I enjoyed the week in review courtesy of Dividend Hawk as well, including various dividend increases by some U.S. and Canadian stocks.
Millennial Revolution offered some tips to squeeze more income from their portfolio for a couple of early retirees. The key approach they took was less bond ETFs, less balanced ETFs and owning more equity-related ETFs that generate meaningful income.
Source: see link above.
ZPR is not great….instead I have a great, recent post that highlights some stellar Canadian, U.S. and international ETFs to generate retirement income here.
Check out this Globe & Mail article this week: why your dividend stocks could use another look. (Paywall). This article is not what you think – it’s very pro dividend stocks for many reasons. From the article:
“The popularity of dividend investing in Canada is well-earned – this segment of the market tends to protect investors’ capital fairly well in a market downturn, while capturing most of the upside of a bullish run. Dividend payments are also generally taxed at a lower rate than other forms of income in Canada. And the Toronto Stock Exchange is skewed much more toward income rather than growth, especially when compared with the U.S. market.”
Of course, many pure indexers won’t like that statement but I didn’t make it! 😉
Dividend Growth Investor included a phenomenal list of Peter Lynch quotes. A few of my favourites, as it applies to my journey:
“15. This is one of the keys to successful investing: focus on the companies, not on the stocks.”
“33. If you invest $1,000 in a stock, all you can lose is $1,000. But you stand to gain $10,000 or even $50,000 over time if you are patient.”
Last but not least, mixing the life of frugality and luxury, A Purple Lifeshares how she lived on just….drum roll…$16,929.93 as a global nomad in 2022. Incredible. She even travelled business class during the year by using various travel rewards. Well played.
As always, check out my Deals page for my current list of partnerships and massive discounts off any stock or ETF-based newsletters from the investment community.
Have a great weekend!