After the stellar year we had in 2021, when we saw the markets continuously climb to new highs, no one predicted the selloff we experienced in 2022. The S&P 500 benchmark ended the year down almost 20% while the Nasdaq 100 shed a third of its value as technology stocks reacted badly to rising interest rates.

Last year inflation skyrocketed causing global stocks to lose one fifth of their value, the worst run since the financial crisis. Bonds, which usually offset the volatility of stocks lost 16% of value, the biggest decline we have seen since the 1990s. In response, central banks around the world raced to slow inflation by raising interest rates at record speed.

It was the worst year investors have experienced in more than a decade – but at least it’s finally over.

“We’ve never seen a market environment like this where both stocks and bonds were down simultaneously,” stated Art Hogan, chief market strategist at B. Riley Wealth. “The good news is that we will soon put the year in the rear-view mirror. The bad news is that 2023 could be a bumpy ride, at least for the first few months. Weaker economic trends will likely form heading into 2023 as the Fed battles inflation, but a mild recession may help set stocks up for a better second half of the year.”

Investors will continue to face uncertainty going forward with higher interest rates expected, persistent inflation, risk of recession, jittery markets, and a slowing housing market. Markets are expected to stay range-bound this year, essentially bouncing up and down but only moving sideways.

How should you invest this year?

We all know the adage “Buy Low & Sell High” so for investors that have some time on their side, it’s a good time to invest in equities as the prices have come down significantly. Keep your portfolio diversified and make sure to include some high-quality dividend funds, always a great choice for long-term growth.

With the higher interest rates, fixed income funds that include bonds now look better than they have in over a decade. Increasing your allocation to fixed income could definitely benefit your portfolio going forward.

If you are nervous, adding some cash to your asset allocation might be a good option, some High Interest Savings accounts rival GICs for rates but can be a lot more flexible. The cash could then be used to dollar cost average into the markets on the lows, giving you better long-term growth over time.

As always, if you have any questions or concerns regarding your investment portfolio, please don’t hesitate to contact me.

Happy New Year! (Bring it on!)

Tracey

Sources: Article by Stephen Kirkland, S&P 500 ends a Grim Year Down by 20%, posted on Bloomberg.com 12-29-22, Article by The Canadian Press, investing in 2023 against a backdrop of economic uncertainty, posted on Advisor’s Edge 01-03-2023

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