The Sisyphean Road to Recovery
To say 2022 was a topsy-turvy year would be an understatement.
The pandemic winners of 2020 and 2021 have now flipped to become significant losers in a strange twist of fate. While most people’s portfolios would not have experienced losses as large as the Russian market that has gone down to zero, the drawdowns in some other markets have been eyebrow-raising to say the least.
Some losses suffered by a few popular investments in 2022:
In investing, it is not the small losses that matter, but the big ones. If you were to suffer a -50% loss in a particular year and then receive a herculean (albeit unlikely) 100% return on that investment in the subsequent year, you would be right exactly right where you started — with a 0% compound return after 2 years in the markets.
Loss recovery does not follow a linear path; as the losses get bigger, a bigger gain is required to restore the losses at an increasing rate. Essentially the higher your loss, the effort to come back to par becomes Sisyphean.
Therefore the key to managing a portfolio of investments is the management of risks because if you were to put risk first, the returns will take care of itself.
This is the reason why our investment portfolios are constructed and managed in a manner to ensure that despite what could or can happen in markets, the risk will be contained within a certain boundary.
Deep losses can invalidate your portfolio for many years, however, there are some things you can consider doing that will make your portfolio more resilient against them:
Be broadly diversified in assets that are able to generate growth
Tilt your portfolio towards drivers of return that can help in conserving value during market crises
Invest in assets that give you downside protection
If you would like to know more about constructing a robust and resilient portfolio that is able to weather various market situations or want to know how to construct a portfolio that is able to deliver the returns required to hit your financial goals, click here to schedule a 30-minute pre-discovery session where we can have a chat with you and see if we are able to add value to your concerns.