Learning the Hard Way: 2022 Portfolio Rankings

Psychology, Portfolios

Now that we’ve had a few weeks to recover from the holidays and start planning for the new year to come, it seems like an appropriate time to revisit the events that made 2022 such a uniquely memorable year in the investing world. It ended up one of the worst years on record and I imagine most people are ready to move on. But before we all pick ourselves up and start anew after the carnage, I think it’s important to put what we all experienced into proper historical context.

Sometimes the hardest lessons are the most educational.

How did each portfolio option fare in a truly tough time to invest? How does this past year compare to other bad years that came before? And what can we learn to affect our path forward?

I’ve got the data for all of the 2022 portfolio rankings. So let’s find out.

New Returns Data for an Interesting New Year

Updates

With the volatile financial markets of 2022 mercifully in the history books, I think we’re all looking forward to a fresh start. To truly appreciate the way forward, however, sometimes it helps to fully understand the past. That’s why January is always a fun month here at Portfolio Charts — it’s time for new returns numbers! For investors like me who want to know not just the best times or even the average times but the truly painful times to invest in a given portfolio, this new data drop should be particularly educational.

Updating the underlying data always takes a bit of effort, so I bundled in a few more overall improvements in the process. Here are all the changes you’ll see around the site.

Bonus Points: Holiday Chillin’

Bonus Points

The weeks surrounding the New Year are always some of the busiest for me, as between holiday plans and preparations for annual data updates there’s always a lot going on. Combine the normal festivities with a major winter storm here in the United States, and simply staying warm, happy, and productive will be top of mind for a little while.

So in lieu of an elaborate new post to wrap up the year, I figured this would be a good time to re-share a particularly good one from last December that is honestly pretty timeless.

The FTX Lesson That All Investors Should Learn

Beginner, Theory

Any time there is lots of money involved in a particular market, there will inevitably be a subset of people that emerge to capitalize on the situation by exaggeration, deception, and outright theft. Madoff, Enron, Lehman Brothers, Tyco — history is littered with financial frauds that cost investors billions.

How does nobody see it coming? Unfortunately the world today isn’t as simple as obvious good guys and bad guys, and it’s sometimes impossible for normal people to tell respectable companies apart from carefully constructed marketing images. The good news is that there are a few simple steps you can take to protect yourself from the fallout when things go terribly wrong from events you never saw coming.

But before we get to the good stuff, let’s unwind the most recent example of financial corruption that every investor should educate themselves about — the rise and fall of FTX.

Bonus Points: A Time to be Thankful

Bonus Points

The whole world is watching the ongoing financial carnage resulting from the FTX collapse, and every revelation is truly a sight to behold. I’m definitely working on my own article discussing the situation, but an extended writeup about greed, corruption, and downright stupidity just seems painfully out of place during the week of Thanksgiving. To highlight the worst in the world completely misses the point.

So in honor of my favorite holiday, let’s take a moment to turn off the inflammatory news and appreciate the good things in life. You only get one, so don’t waste it being angry or disappointed.

Happy Thanksgiving!

Bonus Points: Election Hangover Edition

Bonus Points

The Tuesday after the first Monday in November seems arbitrarily ordinary when you write it out like that, but for US investors it carries a unique importance. It’s election day. That day came and went on Tuesday to much stress and fanfare depending on whether your favorite candidates or ballot measures won or lost. I don’t know about you, but I could use a break.

The beauty of asset allocation is that it transcends party affiliation. Sure, politics affects markets. But diversification is there to help no matter who is in charge, and the sovereign law of compound interest doesn’t care who the nightly news is talking about today. Wise portfolio construction is the level head that steadies the ship in both calm and stormy seas.

So as you detox from the political bender affecting all of us, maybe take a moment to appreciate the stable things in life. Find the right portfolio, turn off the news, and take a walk outside. In both politics and money, the quiet voice of calm clarity requires focus to hear over the din of loud, attention-seeking voices. But it’s worth the effort.

Harvesting the Fall: Why I Sold All My Bonds

Beginner, Theory

Investing is like riding a skateboard. It takes skill, balance, lots of practice, and a certain amount of fearlessness. You know for a fact that you’re going to fall sometimes, and yet you do it anyway because you understand that perseverance pays off. Still, even the best skaters know when and how to bail gracefully without getting hurt.

With bonds cratering this year amid rapidly rising interest rates, that portion of my portfolio is currently a sea of red. Bond purchases going back a full decade are suddenly underwater, and after surveying my options it quickly became evident that it’s time for a big change. So after much deliberation, this week I finally pulled the trigger and sold every long term bond in my portfolio. With a simple click of a button, a big chunk of my total holdings that I’ve depended on for years went straight to my cash balance and I realized a sizable capital loss in my account.

Then a few seconds later, I put all of that money into an extremely similar bond fund with much lower expenses. And I used those capital losses to also swap out my gold holdings with big capital gains completely tax free. The end result is that I took advantage of unique market conditions to maintain the same asset allocation that serves me very well while saving potentially thousands of dollars a year.

What — you thought I bailed on bonds entirely? Please. My portfolio continues to cruise on, and I landed that kickflip like a champ!

Here’s how you can, too.

The Story of the Portfolio Charts Hat

Updates

Have you ever started a relatively small task only to have it quickly spiral out of control?

A few weeks ago I decided that I’d really like to add a Portfolio Charts hat to the product lineup, mostly because I just wanted one for myself. I quickly found that the logo didn’t really lend itself to that type of application.

“No problem! I’ll just make a new logo.”

Well, as Boromir might say, one does not simply make a new logo.

All About TIPS: Real Returns and Inflated Expectations

Advanced, Theory

Now that inflation is raging at highs not seen in the last 40 years, it’s no wonder that investments which guard against inflation have been experiencing a massive influx of money. With billions of dollars of new inflows every month, Treasury Inflation-Protected Securities (commonly referred to as TIPS) have quickly become some of the hottest portfolio options for nervous investors. And since questions about TIPS on message boards and in my inbox are apparently directly proportional to those cash flows, this feels like a good time to dig into the topic and separate the measurable truth from what passes as common knowledge.

How do TIPS work? How often have they succeeded in generating a real return above inflation? And are they really better than normal bonds without the inflation protection? Stick with me, and I wager you’ll learn a few things that may surprise you.