2022 Falls In The Minority
History has recorded 2022 as a negative year for global equities (and bonds). Losses typically make investors nervous about the future — using simple extrapolation, many assume that 2023 will merely be a continuation of the losses experienced over the past year. So let’s look at whether negative annual returns on equities are a common occurrence throughout the long history of stock markets.
Global stocks (represented by MSCI World Index rebased to SGD) have the following interesting statistics:
Global equities have been positive 73% of the time (38 out of 52 years)
Negative returns occurred 26% of the time (14 out of 52 years)
Bear markets (more than -20%) only occurred 9% of the time (5 out of 52 years)
For declines of -10% or less, 87.5% of those events recovered within a year (7 out of 8 events)
So what we can learn from simple statistics of past returns?
Markets go up more often than down.
Being broadly diversified means not having to suffer large drawdowns as often compared to concentrated, derivatives, or single stock investments. Only 9% of the time did global equities experience declines of more than -20% in the past 52 years.
The most common magnitude of decline was in the range of less than -10%, and the likelihood of recovery in the following next year was very high.
For broadly diversified portfolios, bear markets are in the minority.
So for investors who had the (mis)fortune of experiencing 2022 and are worried about the future:
Is 2023 going to be as bad or worse than last year?
How can I protect my capital during market declines
How do I know if my portfolio is sufficiently diversified across individual securities, geographical regions and asset classes?
What can I do to manage my losses from last year?
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