The calendar has flipped, and we now have a new year upon us. It is time for a fresh start. First, however, we'd be remiss if we didn't take the opportunity to reflect on the year behind us to identify what happened and what we can learn from it.
Clearly, last year is one that got everyone's attention because we were reminded afresh that equity markets do not go up forever. In fact, downturns and bear markets can be really uncomfortable. 2022 was the first year of any significant downturn in over a decade. And so, for many new investors, it feels quite unusual and distressing. We know that at the end of the year, the S&P 500, one of the broader measures of stock performance, was down about 18%, which is uncomfortable. But candidly, that falls well within the normal range, with average bear markets contracting about 32%.
And so last year was not unusual in that respect. With that said, I believe there are five lessons we've learned as we reflect back on last year. In advance, I want to thank my friend Ben Carlson, who's done some of the research and helped think through some of these points.
I mentioned above that the equity market returns for last year were down about 18%. But what did not get as much headline attention in the previous year is that the bond market was also down. This was definitely felt by anyone with a diversified portfolio, but not very well understood. In fact, it was only the fourth year since the Great Depression that stocks and bonds were down in the same calendar year. The other years this happened include:
Before 2022, these were the only three years in which stocks and bonds were down together.
And so, last year, we got a stark reminder of what that feels like because contrary to the conventional wisdom that when stocks are down, bonds will be up, or when bonds are down, stocks are up, that is not what we experienced. Last year there was nowhere to hide. Investors with a typically allocated portfolio of stocks and bonds felt drawdowns in both segments. But, again, it is very rare and unlikely to repeat. The lesson here is that in the short term, almost anything is possible.
In 2021, real estate prices were up about 20%. A house that went on the market at the end of 2020 for $500,000 would have easily listed for $600,000 just 12 months later. Coming into 2022, the real estate market was hot. Mortgage rates were 3%, and no one in January of 2022 could have foreseen or was predicting that mortgage rates would more than double within just a few short months. As a result of mortgage rates ending 2022 at over 6%, still after peaking at over 7%, we see the impact starting to take effect in housing prices and the speed of housing transactions.
It's impossible. It's hard to predict the future.
Tech stocks have soared for more than a decade. They were the stalwarts during the second quarter of 2020 when the pandemic was getting its grip on global equity markets. And yet we saw technology stocks like Apple, Amazon, Netflix, and Facebook post very solid returns, partly due to the fact they have a lot of cash on hand and were perceived by investors as being able to weather the uncertainty of COVID and they were more adept at switching to a virtual or a work from home environment. And so, while investors have significantly benefited by investing in technology stocks over the last decade, nothing works forever. In 2022, we saw at the maximum drawdown, Apple down nearly a third, Amazon by over a half, and Facebook and Netflix down by over 75%.
Similarly, in 2020, Tesla was up over 700%, and in 2022, down by 65%. Cryptocurrency was all the rage of the early pandemic years, and in the latter part of the decade, bitcoin was up 300% in 2020 and down 65% last year. And even the broader technology-heavy index and Nasdaq 100 were up nearly 50% during the first year of the pandemic (2020) and down by a third last year. Even rocket ships land eventually.
The stock market is up 75% of the time. If we look at the last 97 years, I think there have been 26 that had negative calendar year returns. And by contrast, then I think 71 years that have had positive returns, losses are inevitable but not permanent.
Even taking into account the 18% drawdown in equity markets in 2022, the S&P 500 is still up 60% since 2019. That's an average annual return of 13%.
It's vital to keep this perspective. I hope that you find these lessons helpful as you reflect on your own goals and investment strategy and determine what is important and how you want to respond to it.
If you have questions about these lessons or are interested in creating a financial plan specific to your own needs and goals, please reach out to one of our financial professionals.
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Shane Tenny is the managing partner of Spaugh Dameron Tenny. Along with hosting the Prosperous Doc® podcast, Shane has a true passion for behavioral finance, helping clients and audiences understand how to develop successful strategies based on their unique temperaments. An accomplished and highly engaging speaker, Shane is regularly interviewed for television and podcasts, is actively involved in the Financial Planning Association®, and contributes to industry advisory boards.
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