3 Investing Headlines To Ignore This Year

3 Investing Headlines To Ignore This Year-1

Last year was brutal for both stocks and bonds. In the middle of the year, during what turned out to be the market bottom (and inflation peak) I suggested you stop checking your portfolio. This comes from the analogy that your portfolio is like a bar of soap; the more you touch it the smaller it gets.

The idea that stock and bond prices can fall in the short-term is precisely why investors are rewarded in the long-term. The problem is it’s hard to stick with even the most sensible investment plan because markets are extremely noisy and we almost always feel compelled to act.

I hear this from readers and clients all the time. In the 2010s it was all about the S&P 500. No reason to diversify beyond the top 500 U.S. companies when it’s the best performing index (completely ignoring the previous “lost decade”).

From 2020 to 2021 it was all about the NASDAQ. High-flying tech companies were changing the world and you were missing out if you didn’t add a technology “kicker” to your portfolio.

Investors who didn’t diversify beyond U.S. equities or large-cap technology stocks got a rude awakening last year. The NASDAQ was down 33%. The S&P 500 was down 18%. Meanwhile Canadians stocks were down 8.5% and a global portfolio of stocks was down about 11%. 

Now what I’m hearing from readers and clients is that after a year of losses, investors are ready to capitulate and move to GICs. They’re forgetting:

“Investors who focus too much on short-term performance tend to react too negatively to recent losses, at the expense of long-term benefits.”

I don’t have a crystal ball to tell you how to position your portfolio in 2023. Last year I said to lower your expectations for future returns after years of outsized performance. Now the best I can offer is that we can increase our expectations for future returns after both stocks and bonds suffered double-digit losses.

So what should you do? Start by ignoring these three investing headlines this year.

1.) 2023 stock market predictions 

Nobody else has a crystal ball either. So why do we eat up these market predictions every year? Besides being nothing more than useless guesses, most predictions invariably go with the current trend.

Last year’s predictions were for the stock market boom to continue (oops!). This year’s predictions are much more pessimistic. 

This graphic from the Honest Math website has it right:

2023 market outlook

2.) Last year’s top performing stock(s) and ETF(s)

Back in the day (I’m talking in the original Wealthy Barber days), investors and their advisors picked investments after combing through performance reports to find last year’s top mutual fund managers and best performing stocks.

But decades of research and data now show this to be a laughably ineffective way to pick investments. Yes, there are a handful of active managers who outperform their benchmark index. The challenge is that it’s impossible to identify them in advance. 

The same holds true for individual stocks and actively managed ETFs, or any asset class for that matter. What performed well in the past can quickly revert to the mean with a year of underperformance.

Look no further than the periodic table of investment returns – a brilliant visual on the power of diversification and why performance chasing leads to poor outcomes.

periodic table of investment returns

Last year’s winners become this year’s losers, and vice-versa. Making things worse, by the time regular investors shift their portfolios into these winning funds, sectors, or individual stocks, the money has likely already been made. 

A better idea is to hold a diversified portfolio of assets so you never have to guess which one will outperform from year-to-year.

3.) What investors need to know today

The Globe and Mail has a long running column called, “what investors need to know today.” I hate it.

It’s great for news junkies who are interested in quarterly earnings reports, IPOs, mergers and acquisitions, inflation expectations, etc. But regular investors don’t *need* to know anything on a daily basis to maintain a sensible portfolio.

One of the main reasons I invest in Vanguard’s All Equity ETF is so that if I pulled a Rip Van Winkle and slept for two decades I could be reasonably confident that I’d end up with a good outcome from my investments.

What can a regular investor glean from a daily newspaper column that might give him an edge trading stocks with professional money managers and computer algorithms? Information is quickly baked into a company’s share price, so unless you have some type of insider knowledge you’re trading on the same information as everyone else. Not helpful.

What investors need to know today circles back to my original point at the top of this article. Stop checking your portfolio so often. Diversify broadly so you get a tighter dispersion of returns rather than the up-and-down roller coaster ride from year-to-year. 

And stop chasing performance. Recognize that reversion to the mean will happen. Years of outperformance should lower your expectations for future returns. Similarly, a year of truly bad performance should increase your expectations for future returns.

Again, I don’t know what will happen in 2023, but I’m optimistic that stocks and bonds will have good future returns after a brutal year in 2022.

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  1. Kevin on January 1, 2023 at 8:03 pm

    Someone much wiser than me once said: Those that predict the future are fools, and those that believe said predictions are the greater fools.. Just keep buying. Happy new year.

    • Robb Engen on January 2, 2023 at 10:28 am

      Hi Kevin, happy New Year! I agree 100%. Control what you can control and tune out the rest of the noise.

  2. Frito on January 1, 2023 at 8:14 pm

    Good advice! I’m hoping there’s a relatively quick turnaround, similar to post 2015 and 2018 rather than the 2 year 2008 recovery. 2022 was indeed brutal!

    Something that has always bugged me about the media pundits is that on every big down day or big up day, they feel compelled to indicate one reason for the shift. Sometimes it’s an actual event (Russia/Ukraine for example) but usually it’s some benign general fluff that makes them sound like they know exactly what is happening. Drives me crazy!

    Here’s to a Happy and PROSPEROUS New Year!

    • Robb Engen on January 2, 2023 at 10:36 am

      Hi Frito, thanks. Yes, those daily headlines always bug me too, but I guess writers have a word count to hit and just saying the market was up without any explanation (valid or not) isn’t enough to satisfy their editors!

      I also love when the market is down in the morning due to some world event and then up by the end of day due to the same event!

  3. Mark on January 1, 2023 at 9:06 pm

    Overall, good advice. If you have a sound, long term strategy, just believe in it. My personal approach is a little more hands-on than yours, but I do very little trading. Fortunately, this left me with much better results than the market last year. Overall investment accounts were up 2% from YE2021, though I contributed ~4%, so in reality my performance was ~-2% – but much better than the performance of the various market indices. More importantly my future dividend stream increased by ~15% paving the way for future retirement. Hopefully, we will have more market support looking forward.

  4. Jen Moore on January 2, 2023 at 6:55 am

    Hi Rob – just curious about your thoughts on bonds. I am also in an all equity ETF. I am wondering whether part of diversification may be including a percentage of bonds in my portfolio….
    Happy new year!!

    • Robb Engen on January 2, 2023 at 8:44 am

      Hi Jen, I think most investors should have some bond exposure in their portfolio. The good news is that it’s a much better time to buy bonds today than it was at the beginning of 2022.

      With bonds, it’s important to know the duration or time horizon of when you need the money. If it’s long term money for a far off retirement then an aggregate bond index would be fine (VAB, ZAG, XBB – the same ones included in the all-in-one ETFs like VGRO, ZGRO, and XGRO).

      If your needs are shorter-term in nature (3-5 years) then a short-term bond fund would be more appropriate (VSB, XSB).

      • James R on January 3, 2023 at 9:23 am

        I prefer to treat my retirement planning like my eventual CPP and OAS will be my “bonds”, and I otherwise will invest 100% in equities.

        Having said that, I do expect to be using only my dividends / distributions, and I will turn off the DRIP 3 – 12 months in advance of retirement so that I have pre-established an amount of cash ahead of time.

  5. Gert on January 2, 2023 at 7:07 am

    Unless you’re one to believe in conspiracy theories and coupled with the current government’s involvement in the WEF (World Economic Forum) and the prime minster’s plans of increasing carbon taxes etc… It doesn’t take a crystal ball to see what’s potentially coming.
    I’m sorry but I’m an optimist by nature but…
    I don’t buy into conspiracy theories but…
    Until someone can explain to me how our prime minister can be part of the WEF where it’s leader is quoted as saying “you will own nothing and be happy” all bets are off.
    What’s been happening to our savings is not yet beyond repair and there may very well be a turn around but what if the fall continues in the year where a recession is all but confirmed?
    My entire life savings are dropping and given the inflation rate those dollars are also worth considerably less. Therefore, a 15% drop in the marks together with inflation make it closer to 22%. Inflation expected to go up as increases to gas prices loom, due to the carbon tax increase, the future of my money is getting closer to owning nothing every day.
    Again I’m sorry to be so pessimistic but I think certain things need to be said and discussed. I’m worried about my future but more so about the future of my children.
    Someone please tell me I’m wrong and have just gone completely off my rails and I’ll sit back and ride this out, what choice do I have?

    • Robb Engen on January 2, 2023 at 8:37 am

      Gert, I’m afraid you’ve been misled down a terrible rabbit hole of misinformation. There is no global conspiracy to take your property and force you to eat bugs.

      The federal carbon tax has nothing to do with a global inflation spike, and very little to do with our domestic inflation. Heck, the province of BC has had a price on carbon since 2008. Inflation peaked in June of last year and most metrics have been falling steadily since. Sure, it will take a year or so to get back to the inflation target of 2%, but it’s well on its way there.

      Gert, I urge you to reconsider the sources you read and listen to. Understand that we just went through a once-in-a-century global pandemic at a time in which the global economy has never been more connected. The result was a nearly three year period of severe dislocation in the economy (assets boomed and then busted. Interest rates plummeted and then soared. Supply chains bottle necked and then unclogged).

      The optimism is in that we’re slowly returning to a more normal, fully functioning economy.

      • Gert on January 2, 2023 at 11:34 am

        Thanks Robb! I sure hope you’re right. I agree, there sure is a lot of miss-information out there and there does seem to be a divide of sorts.
        I’ll remain optimistic but it sure is getting harder and hard to know what’s true and what’s not.
        I have a lot of trouble believing governments these days especially here in Quebec.
        At the end of the day if the economy gets back on track opportunity will as well.
        I’ll continue investing because I do believe in the concept of buying low.
        All my best to you and your family for a safe, healthy and happy 2023

  6. Jason on January 2, 2023 at 9:31 am

    I remember attending a seminar on investing held by a Fund company and the first speaker was the the Fund Sales Manager. He spoke about headlines in the paper, He showed 3 headlines. The Monday headline said the market was set to soar, Wednesdays headline warned about the coming drop in the market and Fridays headline said signs point to rising markets. He showed these to drive home the point that headlines are meant to sell papers, so do your homework.
    The fund company was later bought out by another fund company

    • Robb Engen on January 2, 2023 at 10:38 am

      Hi Jason, I saw this play out in December when the Morgan Stanley CEO was quoted on one news outlet saying the bear market rally won’t last and another news outlet saying this was the beginning of a new bull market. Truly bizarre!

  7. Curt on January 2, 2023 at 10:42 am

    Happy New Year Rob,

    We are still in for the long game despite our age, etc. We are a little more conservative with our Vanguard VGRO. It’s very much about the fees for us. We’ll ride the waves, but the fees are a constant drain we don’t have and don’t need.

  8. Doug Badger on January 2, 2023 at 10:55 am

    Good advice Rob, re tuning out the daily headlines, but most of us are at least somewhat addicted to the news cycle, especially since the Russian invasion last February, and not forgetting the media obsession with Trump.
    We got a good real-time lesson on our risk tolerance in 2022. Being seniors, we ratcheted down our 60/40 equity/fixed allocation to 50/50 at the end of the year, taking advantage of the higher GIC rates. Seems many Canadians did the same, as the rates ‘softened’ towards year-end.
    All in all, with dividend income and interest included I ended the year with a loss of just 2%.

  9. Sandra on January 3, 2023 at 8:06 pm

    Hi Rob, you indicated in your first paragraph that last year the middle of the year turned out to be the market bottom. What makes you think it was the bottom? Many analysts say we haven’t even hit bottom and the worst is yet to come. Or did you mean bottom of 2022?

    • Robb Engen on January 5, 2023 at 10:39 am

      Hi Sandra, yes the market bottom for global stocks so far was reached in mid-June (other than the S&P 500, which slumped again in October).

      Certainly we could see lower lows from here, but keep in mind that even if we have a recession this year that doesn’t necessarily mean poor returns for stocks. The market is forward looking and this current slump may have already priced in an upcoming recession and lower corporate earnings. When inflation cools, the market might indeed turn around with the idea that the worst is behind us.

  10. Gin on January 4, 2023 at 1:48 pm

    Happy New Year!
    Totally agree about predictions and the news. All that happens is that the narrative of the day supports what is going on since, as you say, no one has that crystal ball.

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