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What lessons can we learn from 2022? 

In short, 2022 was a difficult year for markets. It was a busy old time, with many events at play that impacted pretty much all asset classes negatively.

Of course, turbulent years like last year can pop up every now and then. What’s important to remember is that a year is a relatively short timeframe in the world of investing. A big part of being an investor during tricky periods are the lessons you can take to your long-term investment journey.

A quick recap of the year

At the beginning of 2022, we thought the key factors to shape the year would be Covid and higher inflation. These elements played their part, but on top of these, so many other events unfolded too.

Russia’s invasion of Ukraine in late February caused a global shock. The implications fed through into markets, with shares in particular suffering the most. The price of commodities soared given Russia is a key producer of several important commodities including oil, gas, and wheat. This contributed to a further surge in inflation as well as supply chain disruptions.

Both shares and bonds were under pressure in the second quarter as investors moved to price in further interest rate rises and an increased risk of recession. Inflation continued to move higher in many major economies during the quarter.

After a rally in July, both shares and bonds turned lower and registered negative returns for quarter three. Any hopes of interest rate cuts were dashed as central banks reaffirmed their commitment to fighting inflation. The US Federal Reserve, European Central Bank and Bank of England all raised interest rates over the year.

The end of the year finished with even more uncertainty. UK markets experienced particular turmoil as Liz Truss took over as prime minister and the announcement of the government’s mini-budget didn’t go down well – although they did recover slightly after Rishi Sunak and Jeremy Hunt appeared to add a level of stability with their Autumn Statement only a matter of weeks later.

In the US, there was the mid-term election as well as further confirmation from the US Federal Reserve that they expect rate hikes to continue – despite a lower than expected inflation reading.

Key takeaways from 2022

1. Markets often recover from short-term setbacks

As investors, it’s a wonder we’re all still standing after the year we’ve had. But we’re pretty sure we said the same after 2020. The matter of fact is, markets are forward looking and there will always be something new around the corner for them to focus on – but more often than not, they learn to adapt to what’s going on.

For example, the losses incurred on the days following Russia’s invasion of Ukraine were soon recovered. In February 2022, as war broke out the FTSE 100 tumbled, but it soon made a quick recovery from this low. The same goes for October when the UK’s political turmoil took hold of UK markets, It once again didn’t take the index long to recover from the drop.

2. Highs and lows are a part of long-term investing

Before 2022 markets had been on a strong run for quite some time. But even with the overall roll they were on, there were still lots of ups and downs. For example, in March 2020, when most of the world went into lockdown, global stock markets crashed. But it didn’t take them long to recover.

Stock markets rise and fall all the time, which means that we just have to get used to the highs and lows of investing – and not lose sight of our financial goals.

To make a good investor you should neither commiserate or celebrate too much or for too long. You should understand that ups and downs over the short-term are part and parcel when it comes to investing.

The most important thing you can do is to keep a long-term view at the forefront of your mind. This should help you look at short-term fluctuations as a mere disruption in a much longer journey.

As famous investor Warren Buffet once said: “If you aren’t willing to own a stock for 10 years, don’t even think about owning it for 10 minutes.”

3. We’ve no idea what 2023 will throw us, but remember it’s the long-term that counts

There’s a great deal of uncertainty surrounding this year. Who would have guessed the UK would have three prime ministers in the space of a few months last year?

We’ve no idea how the war in Ukraine will progress, how much further central banks will take rate rises and whilst markets have factored in a recession on both sides of the Atlantic, we’ve no clue how deep or shallow it could be.

The only certainty over the last few years has been uncertainty, and there will be more of the same to come. That’s why it’s important to remain committed to your long-term goals and keep in mind the diversified approach you take through your investments with Skipton.

Unless you have a legitimate reason to make changes to your plan – a reason that relates to you and your circumstances – then we’d suggest keeping calm and carrying on.

Important information

Please bear in mind that past performance is not a guide to future performance, and the economic conditions of the past may not be repeated in future.

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