The S&P 500 stock index returned 28.7%, counting reinvested dividends, last year. It was the seventh-highest gain in the past half-century, according to S&P Dow Jones Indices. That came after total returns of 18.4% in 2020 and 31.5% in 2019. This has been like consecutive home runs, if not a grand slam, of stock investing.
Now we find ourselves eight trading days into 2022. The broad stock markets are continuing a recent turbulent pattern having begun in November. It feels like the market is hitting foul balls, not really helping itself yet not really hurting itself. Does this imply 2022 will be a rockier road than last year for the market?
It might or might not because the future is unknown. It would be easy to conclude that the stock markets must get worse from these high levels. Jason Zweig of the Wall Street Journal reminds us, “You’re wrong if you think big gains can never recur after three years in a row. In 1995, the S&P 500 returned 37.5%. In 1996, stocks went up 23.1%. They gained 33.3% in 1997, 28.7% in 1998 and still another 21.1% in 1999.”
However, markets don’t move in a straight line higher forever, and stocks finally crashed in 2000. As we blaze ahead into 2022, I feel it’s pragmatic to assume this year will be more turbulent than last. I say this for a variety of economic and geopolitical reasons. What this means to us is that 2022 may require more self-control as an investor to not let a bit of turbulence affect our long-term strategy.
To this point, Zweig writes, “I think the best investment of 2022 is likely to be discipline. With the course of the coronavirus pandemic unclear, inflation expected to keep spiking, and the Federal Reserve poised to raise interest rates, anything can happen – and probably will. What’s more, the things that feel most certain aren’t as obvious as they seem – so investors need to beware of taking drastic actions that, later on, they will wish they could undo.”
Let us know how we might be able to help you invest in discipline this year so that you can have long-term success.