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5 Biggest Investment Lessons Learned in 2022



Before you start tackling those New Year's resolutions that, let's face it, start to lose their luster a few months in, I want to share with you 5 critical lessons learned in 2022 to help set you up for financial success this year. Let's get into it.


Happy New Year everybody and welcome to 2023! I am your host Eric Presogna, CPA, CFP here to help you increase your income, reduce your taxes and invest smarter.


With 2022 now in the record books, wishing for the current year to end is starting to become a trend on New Years.


In 2020, we had COVID-19. The majority of those lucky to get together in person on December 31st celebrated the end to an abysmal year.


Then the world reopened in 2021, though the virus (and its variants) lingered longer than expected while political unrest gained momentum. Thank God for 2022, right?


Let's start with the good: COVID is now relatively under control and becoming more like the common cold than a global pandemic. Unemployment is still near record lows and wage growth remains strong.


With positives abound in 2022, the negatives seemed to garner most of the attention including a war in Ukraine, sky-high interest rates, rising inflation, falling asset prices, an Enron-sized Ponzi scheme and a pending economic recession.


As much as some of us would like to forget the past and focus on the future, I think it's important to reflect on what happened so we may better prepare for what's to come.


In reflecting on last year, I wanted to share with you 5 Lessons Learned in 2022 to Help You Succeed in the New Year:


1. Learn From Your Failures


The market failed to give investors the return they needed to keep up with inflation.

So did bonds, and pretty much every major asset class other than commodities.


I too had my fair share of failures both personal, and business-related.


What I've learned over the years that really hit home in 2022 is that failure is by far and away the best tool for learning. It's not always fun in the moment, but reframing failures as opportunities to learn and improve can be a valuable asset.


Take the markets last year as an example. Two of the most prominent indices almost every investor has exposure to, the S&P 500 and Barclays Agg, were down 20% and 13%, respectively.


The failure here is not that both lost money, but that one didn't do it's job.


Bonds have traditionally acted as a safe haven during market downturns. When stocks crashed 40% in 2008, bonds returned nearly 6%.


This time, however, fixed income performed almost as poorly as stocks.

Epic failure, or learning opportunity?


One takeaway here is that it pays to understand what you're investing in. Thinking you can move 40% of your portfolio to a low-cost bond index fund does not mean 40% of your money will be safe. Bonds are a highly complex, can move sharply in price as rates change and require as much (if not more) care and attention as stocks.


Another lesson learned is follow the old adage: Don't fight the Fed! To do this, you first have to be sure you're following what the Fed is doing and ensuring your investment strategy isn't drastically misaligned with their policy. For example, owning long duration bonds in 2022 would have resulted in a massive loss to the tune of 30% or more depending on duration.


Now is a great opportunity to review your investment strategy and be certain you understand exactly how you're invested in both equities AND fixed income. Further, be cognizant of what's going on at a high level in our economy so that you can better grasp how changes in, say interest rates may affect your portfolio.


2. Envy is the Single Largest Destructor of Wealth


In a 2022 interview, legendary investor Charlie Munger said, "The world isn't driven by greed. It's driven by envy."


I couldn't agree more.


Just think about all of the newbie investors posting videos on TikTok about the millions they made investing in crypto, NFTs and virtual land. Or your buddy who made a killing trading stock options.


It's easy to forget that there's no such thing as a free lunch when teenagers are making more in a month than you have in 30 years.


Envy makes people do things they ordinarily wouldn't do with their money. Like investing their emergency savings into crypto staking platform Celsius after hearing their co-worker is getting a yield of 18%. Celsius has since filed Chapter 11.


It's not about wanting more money or higher returns, but rather wanting what others have that you don't.


Envy is a dangerous thing and quite possibly the single largest destructor of wealth.


It isn't easy to avoid, but the ones who do (like Munger) are grateful for what they have and never feel the need to constantly compare themselves to others. Their personal development is measured against who they were yesterday, last week and the year before instead of their neighbor with the bigger boat.


Remember this the next time you hear someone brag about how much money they made in a specific investment and don't let their insecurities affect how you manage your finances. Eventually, the bubbles burst, the mania fades and the charlatans quietly return to their 9-5's.


3. It's Always Different This Time


There's no correlation between years' experience in something and proficiency in fortune telling.


I see it all the time: Some so-called market expert with 40 years on WallStreet claims "they've seen this before" and prognosticates precisely what's going to happen in the future based on their knowledge of the past.


The only thing I know for sure is that this isn't the way the world works. In fact, it's always different this time.


Technology is constantly improving each and every day. New business leaders replace old ones. U.S. Presidents are elected every 4 years. Trends come and go. It always changing.


General Electric was the second largest company in the world by market cap back in 2000. Now it barely cracks the top 200. Communication services used to represent over 30% of the S&P 500 10 years ago. In 2022, it sits at 12%.


I've said this before, but the only constant in life other than death and taxes is change.


History can be a useful tool to inform us about the past and help in framing our decision-making going forward. In fact, I use historical market data in my own business to gain a clearer perspective on where we are today and assess the probability of what MAY come tomorrow. It's really all we have.


What history doesn't do is tell us for 100% certainty what the future holds.


You and your portfolio will be far better off accepting/embracing change, paying attention to past AND present data, and keeping an open mind.


4. You Can't Plan Enough!


There's really no such thing as "over-planning" when it comes to managing your wealth.


I don't think anyone in history has ever said to themselves, "Wow, my finances are too organized and I'm overly prepared for any scenario in the market."


At it's core, what planning really does is help you feel more confident in your ability to manage the unexpected.


Going back to the beginning of 2022...


What was your plan if the stock market drops 20%? What if bonds drop 13%? What if both of those things happen? What if both of those things happen and the price of everything goes up simultaneously?


Did you have a plan for all of that and if so, how did you react/adapt?


Planning doesn't necessarily prevent those problems from happening but offers peace of mind knowing you're well positioned to handle them should they arise.


If nothing else, I hope 2022 illustrated the importance of being proactive with your investments and having some kind of plan in place.


And if you don't have a financial plan, now's as good a time as ever to start building one. If you don't know where to start, simply write down the top three things that keep you up at night relating to your finances. Most often these will be fears about what may happen in the future.


Once you have your three things identified, determine what action steps you need to take today to successfully navigate through those fears should they become a reality, then write them down.


Example: if you're afraid of not having enough retirement income to fund your lifestyle, a plan may involve updating your investment strategy to be more dividend-focused and having a higher weighting of international stocks. And once you do that, estimating how much income you'll receive from your portfolio and develop a process for selling some of your investments to cover any shortfalls.


If you need help, don't hesitate reaching out to a professional.


5. Perspective is Everything


Yes, I know your portfolio is down.


Yes, eggs cost like triple what they used to be.


Yes, a recession may be on the horizon.


There are many reasons to complain about this or that but rest assured, things are never as bad as they seem when put into a broader perspective.


If you rent or own a home in the U.S., you should be thankful you have a roof over your head unlike the poor families in Ukraine who've lost everything in the war.


If you lost money in the market this year, be thankful your life savings isn't tied up in a crpyto-Ponzi scheme like the poor investors who trusted FTX with their family nest egg.


I want to briefly read through a piece from history photographed that really hits on this point of perspective:


Imagine you were born in 1900. When you are 14, World War I starts, and ends on your 18th birthday with 22 million people killed. Later in the year, a Spanish Flu epidemic hits the planet and runs until you are 20. Fifty million people die from it in those two years.


When you're 29, the Great Depression begins. Unemployment hits 25%, global GDP drops 27%. That runs until you are 33. The country nearly collapses along with the world economy. When you turn 39, World War II starts.


When you're 41, the United States is fully pulled into WWII. Between your 39th and 45th birthday, 75 million people perish in the war and the Holocaust kills six million. At 52, the Korean War starts and five million perish.


Approaching your 62nd birthday you have the Cuban Missile Crisis, a tipping point in the Cold War. Life on our planet, as we know it, could well have ended. Great leaders prevented that from happening. At 64 the Vietnam War begins, and it doesn’t end for many years. Four million people die in that conflict.


As you turn 75, the Vietnam War finally ends.


Think of everyone on the planet born in 1900. How do you survive all of that? A kid in 1985 didn’t think their 85 year old grandparent understood how hard school was. Yet those grandparents (and now great grandparents) survived through everything listed above.


Perspective is an amazing art. As we enter 2023, let’s try and keep things in perspective. In the history of the world, there has never been a storm that lasted. This too, shall pass.


Closing


What were your big takeaways in 2022 and what do you plan to accomplish with your finances in the new year? Shoot me an email at eric@oneupfinancial.com or share your comments below. I'd love to hear from you.

Thanks for tuning in and spending your valuable time with us today. If you have a topic or issue that's keeping you up at night, please let me know.


Subscriber feedback is very important to me and helps in creating better content for you.


If you haven't already, please subscribe to our blog at oneupfinancial.com/blog so you never miss a post.


Thanks again, and we'll see you in the next one!


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