Welcome to 2022! I know this is the email you have been waiting the whole year for😉 The year end highlights of the market. As a Financial Planner, I do not get as excited about writing these types of articles as I do the more behavioral ones since the latter has more to do with personal financial success, but it is important to pay attention to the market. Also, I need something to distract me as I wait to hear how the surgery for my 13-year old Rottweiler goes. Fortunately, my younger son is scrubbing in with the Vet so she is not alone. With that, let’s hit some highlights of another solid year.
- The S&P500 gained just under 27% this last year. With dividends the return was a little over 28%. Not too shabby at all.
- The best performing individual stock in the S&P was Devon Energy up almost 200%. Worst was Incyte, which is a biotech. It was down about 16%. The number two best performing was Marathon Oil with returns of 150%. So much for the death of oil and gas companies.
- Of the main US asset classes, Large Blend led the way with an annual return of 28.7% in 2021. Small Growth came in at a measly 2.8%.
- Large Growth continues to lead the 10-year annualized number with returns of 19.8% annually. Small Value continues to bring up the rear with annual returns of 12%.
- Since 1980, the market has averaged intra-year drops of 14%. Even with those drops, the market has been positive in 32 out of 42 years. This includes 2021 which was down 5% at one point.
- There are two main factors of growth in GDP. Growth in Workers and Growth in Real Output per Workers. Our workforce continues to get smaller between native born and reduced immigration numbers. We will need to keep an eye out on drivers for Growth in Real Output per Workers as I don’t see immigration numbers coming up anytime soon.
- November 21 unemployment numbers came in at 5.9%, which is below the 50-year average of 6.3%. Wage growth for the same period was 4.2%, above the 50-year average of 4%.
- Core Inflation came in at 5% in November. This is above the 50-year average of 3.8%. Core Inflation excludes Food and Energy. If we included those, the November Headline Inflation was 6.9% vs a 50-year number of 3.9%.
- Connected to inflation, odds are around 60% the Fed will raise rates four times in 2022.
- TIPS were the best performing fixed income category in 2021. It stands for Treasury Inflation Protected Securities. They were up 6%. The Aggregate Bond index was down 1.5%.
- If we expand asset classes past the main US ones, REITs once again led the way with returns of 41.3% in 2021. This is one of my favorite investment categories and I’ve used it for years in portfolios I manage for clients. Large Cap came in 2nd at 28.7% and Commodities were in 3rd at 27.1%. With commodities, the growth was from things like Coffee and Lumber. Not Gold and Silver as those were negative for the year.
- As I mentioned earlier, I prefer to focus on behaviors. Here is one reason why. Let’s look at annual returns for the period of 2001 through 2020 range. REITs have averaged 10% a year, the S&P has done 7.5%, a 60/40 model comes in at 6.4% and the Average Investor has enjoyed returns of 2.9%. Yikes! The only negative of the main categories has been those investing solely in Commodities with annual returns of -.5%. Again, this is through 2020. Maybe 2021 returns turned Commodities positive.
Again, it was another solid year in the markets. Nothing to complain about. I have no idea what to expect in 2022. The history of market predictions is poor, to say the least.
Personally, I remind myself I can’t control what the market does. No one can. I can only control how much I save, what I invest in, focus on the cost of the investments themselves, and being as tax efficient as I can be. When I focus on these behaviors I usually have good outcomes.
I’m Dan Johnson, CFP®, founder of Forward Thinking Wealth Management. I run a flat-fee financial planning and investment management firm located in beautiful Akron, OH. Although I am in Akron, OH, I work with clients regardless of location. I cater to owners of equity compensation positions who are looking to organize their financial lives, keep more of what they make, and do the things they want in retirement and even now.