To say the year of 2023 for investors was dead on arrival wouldn’t be nearly pessimistic enough. Consider this: before the year began, more than two-thirds of economists predicted a U.S. recession in 2023.1 Bloomberg was more apocalyptic saying the chances of a recession were 100%.2 As if that wasn’t enough, the Fed piled on with growth projections that also predicted a recession in 2023.
Not depressing enough? Ok, let’s keep this party going. Remember 2022? It ended with stocks taking a beating, marking their worst performance in over ten years. Bonds didn’t fare any better, experiencing their worst year ever. And let’s not forget about inflation, which was stubbornly stuck above 6%, prompting the Fed to launch its most aggressive interest rate hike cycle in decades. Not exactly a Pollyanna moment for investors at the start of last year.
And if you thought things couldn’t get any worse, 2023 brought us a boatload of economic and financial surprises:
- Three of the largest bank failures in U.S history
- The Russia/Ukraine conflict dragging on
- A debt ceiling debacle stirs worries about a U.S. debt downgrade
- Another round of federal budget disputes
- And to top it off, a conflict between Gaza & Israel
Can you imagine how many more economists would have jumped on the recession bandwagon if they had a sneak peak of 2023? Safe bet, it would’ve been a full house.
But guess what? Despite all the doomsday predictions by Wall street experts, the much anticipated recession NEVER showed up. Instead, stocks soared over 25% and every major asset class was positive for the year except commodities.
We could skip the commentary and let Mark Twain summarize 2023 for investors: “It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so.“
There’s an old joke that economists have predicted ten of the past eight recessions. Its humor lies in its shades of truth. But what’s the real truth? The Federal Reserve Bank of Philadelphia conducts an annual survey of economists and investors. Since the survey began in 1946, not a single recession was identified a year in advance. Economists completely missed the recessions of 1990, 2001, and 2008.3 Turns out Miss Cleo’s crystal ball work isn’t so easy after all.
Four keys from 2023 investors can take to build their own investing castle
- Remember, market experts are paid for their predictions, not to be right. Predicting the future isn’t consistently possible. Tuning out Wall Street experts’ predictions is another way to win more by losing less.
- There’s never a perfect time to invest. 2023 felt like a scary time to be invested. The investor “wall of worry” never truly disappears; rather, just the names on the worry wall change. And yet, stocks have historically been positive three out of every four years.
- If you panicked and went all cash last year, it likely cost you dearly. Stocks outperformed cash by a whopping 20+%. That’s 2 years of average stock performance your portfolio (and your financial goals) would now be “missing.” It’s a reminder that for investors to achieve their financial goals, they must be willing to pay the price of admission.
- Similar to the 2023 “ghost” recession, what else do you know about the economy or markets for sure that just might not be true? And what could your “certainty” cost you if you’re wrong?
Have other lessons from 2023? Share ‘em below.
It’s been said that if we don’t learn from history, we’re destined to repeat it. Here’s hoping we all take last year’s lessons on predictions to heart. I’ll kick it back to Mark Twain who undoubtedly was thinking of the 2023 economic and financial landscape when he said, “the reports of my death are greatly exaggerated.”
1 Source: https://www.wsj.com/articles/big-banks-predict-recession-fed-pivot-in-2023-11672618563
Castle Quote: “It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so.“
– Mark Twain
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