Capital Market Impact

The good, the bad, and the volatile

January 19, 2023
A financial advisor meeting with clients

Arguably, 2022 was one of the most challenging years for equity and bond investors, but they need to remember that fluctuations in returns are a normal part of the investment process. Maintaining a clear perspective and focusing on long-term goals can help investors effectively navigate periods of market volatility.

Equity and bond market calendar-year returns, 1928-2022

The chart above highlights how extraordinary the volatility in 2022 was for investors. The year will likely be remembered as one of the worst years for bond investors. Since 1928, there has been only one year when the S&P 500® Index and the 10-year Treasury dropped more than 10%, and that year was 2022. Likewise, at -13%, the Bloomberg U.S. Aggregate Bond Index suffered its worst year since 1994, almost four times larger than the -2.9% lost in 1994.

Market volatility in 2022 also hit the traditional 60% equity/40% bond model portfolio. This was the third worst calendar-year return for 60/40 portfolios since 2002, losing 16% in 2022. Investors have to look back to 2008 or 1974 to find worse returns. However, the chart above also offers hope: long-term investors have seen less volatility, as illustrated by the number of dots in the upper right quadrant. Historically, the longer investors hold on to their portfolios, the greater their chances for overall positive return.

These results also highlight the importance of maintaining strategies to help investors manage volatility and prevent them from selling at “peak” fear. The VIX Index, a common measure of the market’s expectations for volatility over the coming 30 days, was above 20 for 91% of the trading days in 2022, suggesting a high level of market volatility during that year. It may not feel great for investors to embrace volatility at the present moment, but extreme volatility typically has been the exception rather than the norm throughout market history.


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    Bloomberg US Aggregate Bond Index: An unmanaged, market value-weighted index of U.S. dollar-denominated, investment-grade, fixed-rate, taxable debt issues, which includes Treasuries, government-related and corporate securities, mortgage-backed securities (agency fixed-rate and hybrid adjustable-rate mortgage pass-throughs), asset-backed securities and commercial mortgage-backed securities (agency and non-agency).

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