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This past year was disappointing for stock and bond investors. The real (inflation-adjusted) 25% loss in stocks was in the bottom decile and the real 20.3% bond loss is the worst in the past 97 years. Greater losses lie ahead.
The two histograms and the table below provide perspectives on stock and bond performance in 2022.
Stocks, as measured by the S&P 500, lost 18.6% which is a 25% real (inflation adjusted) loss, placing 2022 in the bottom decile of stock returns over the past 97 years:
Bonds, as measured by the Vanguard Total Bond Index, lost 13.7%. This is -20.3% inflation adjusted, making it the worst annual bond return in the past 97 years.
The following table shows stock, bond, T-bill and inflation for the full 97 years and broken out by quinquennial and decade. The current quinquennial and decade have been the worst for bonds, losing 0.5% per year over the past five years and earning only 1% per year over the past decade. Bond losses in 2022 were the worst over the past 97 years.
It’s official. Bond losses in 2022 were the worst in our 97-year history. Yet the 10-year government bond yield is only 4%. Historically bonds have yielded 3% above inflation, which would be 10% in a 7% inflationary environment.
Bond losses could continue into 2023. The worst might not be over.
Similarly, stock losses reflect a gradual relief from the superbubble that built up over the past 13 years. But rising interest rates will generate further stock price declines.
We are in a regression toward the mean, and the mean has not yet been reached.
Ronald Surz is co-host of the Baby Boomer Investing Show and president of target-date Solutions and Age Sage, Target-Date Solutions serves institutional investors, namely 401(k) plans. Age Sage serves do-it-yourself individual investors.
His passion is helping his fellow baby boomers at this critical time in their lives when they are relying on their lifetime savings to support a retirement with dignity, so he wrote a book Baby Boomer Investing in the Perilous 2020s and he provides a financial educational curriculum/
Read more articles by Ron Surz