Perhaps the one thing that investors can rally around is this: 2022 is finally over. There was nowhere to hide last year. Investors faced price declines on both the equity and fixed income sides of their portfolios. The iShares Core Growth Allocation ETF (AOR) , which is based on a 60/40 split between stocks and bonds, shed 17% last year and left investors hurting. After all, bonds are supposed to offset stocks’ volatility and provide some buffer to investors. It was also the worst year for the three major indexes — the S & P 500 , the Dow Jones Industrial Average and the Nasdaq Composite — since 2008. But if you’re reading this – you’ve arrived. Despite the pain of last year, there are a few takeaways investors can glean from the markets and bring into 2023. “Something I’ve thought about is how resilient investors have become from navigating this past year,” said Callie Cox, investment analyst at eToro. “Pat yourself on the back. You are resilient if you’ve made it through this year – even if [you] don’t realize it.” Here are three valuable lessons for investors in the aftermath of 2022. 1. Diversify. Not all tools work in every environment. Before we entered a rising interest rate environment, high-flying tech stocks seemed to have limitless potential. Consider the Invesco QQQ Trust ETF (QQQ) and how it popped roughly 48% in 2020 and added about 27% in 2021. As tech giants like Google and Amazon languished in 2022, the ETF dropped 33%. “Not all tools work in every market environment,” said Cox. “Many investors saw a high rate, high inflation year for the first time since the 1980s. And if we think about [2023] as well, it’s still a high rate, high inflation environment.” Companies that offered investors safety in the form of short-term cash flows or income were the ones that fared well, as did real assets, such as commodities, she said. That same mentality drew investors toward dividend-paying stocks and funds holding those underlying names, like Vanguard’s High Dividend Yield Index ETF (VYM) . The fund, which has an expense ratio of 0.06%, ended 2022 down by nearly 3.5% on a price basis — but it was still far ahead of the S & P 500. Names held within VYM include blue-chip stalwarts like Johnson & Johnson , Exxon Mobil and JPMorgan Chase . 2. There is power in cash When markets are volatile, the liquidity of cash is even more valuable. For one thing, having enough of it ensures that you won’t dump your stocks at the worst time. It also gives you the flexibility to go discount shopping when your favorite names have become sufficiently cheap. Be smart about how you deploy your cash , especially now that interest rates are higher. Don’t forget that six-month and one-year Treasury bills are yielding 4.7% as of Friday. “People got comfortable with zero-percent cash, but they gave up being smarter with it,” said Jamie Hopkins, managing partner of wealth solutions at Carson Group. “There’s lots of opportunity going into next year.” Ultra-short duration ETFs are one possibility to consider, he said. See below for a table of a few offerings, and remember to be fee conscious: Don’t forget that Series I savings bonds that are issued from Nov. 1, 2022 to April 30, 2023 offer a current interest rate of 6.89%. A single individual can purchase up to $10,000 per calendar year through TreasuryDirect . You have to hold your I bond for at least 12 months before you can redeem it. If you cash it in before reaching the five-year mark, you lose the last three months of interest. 3. Remember your goals Last year felt like it would never end. But a single year might not be the best way to measure your end goals as an investor. When investors focus too singularly on short-term events, it becomes easy to chase trends and bail from stocks too soon. “It’s hard to pick one stock and ride it through,” said Hopkins. “That’s a continued lesson.” What does help, however, is drafting a plan to help you remember your motivation even when times become volatile. This way, you not only have the cash you’ll need to provide comfort, but you might even be able to snap up stocks on the cheap with longer-term potential. Your plan should also look beyond the prices of your assets, too. Tax planning, the cost of investing, and having sufficient liquidity all factor into ensuring you reach your goals, said Cox. “Planning ahead is always important, but it’s especially important in volatile times,” she said.
