Why Ordinary Investors Got Struck in 2022

Matthew Carroll St. Louis Cardinals

March 2, 2023

The year ended with markets down nearly 20%, but investors may have a different perspective on the losses. That’s because no one had it more difficult than average savers – thanks to the bond market, not stocks. High inflation, Russia’s invasion of Ukraine, on-again-off-again COVID-19 lockdowns and ultra-aggressive central bank rate hikes all played a part. This created the perfect storm of uncertainty to roil the global market. Why Ordinary Investors Got Struck in 2022 .

High Inflation

Inflation is one of the most significant risks to stock-market investors. We’ve found that equities outperformed inflation 90% of the time when inflation was low (below 3% on average) and rising. Still, that performance did not increase after high inflation (above 3% on average).

This is the highest inflation level in several decades, which has caused significant damage to asset markets and investors worldwide.

As you can see from the above chart, high inflation causes prices to rise and reduces the purchasing power of money. This is a severe issue for those saving for retirement or those on fixed incomes, such as social security benefits.

To combat the impact of inflation on your wealth, invest in assets that are less prone to value fluctuations. For example, collectables like fine art or wine are usually safer from inflation than traditional asset classes. Luckily, Masterworks is an excellent choice for those looking to invest in these hard-to-value assets.

Russia’s Invasion of Ukraine

One year ago, Russia launched a brutal and unprovoked invasion of Ukraine. In response, the United States rallied the world to deliver critical security and economic assistance to Ukraine and to impose unprecedented costs on Russia for its aggression.

President Biden visited Kyiv and Warsaw, Poland, this week to show the world that the United States will continue to stand with Ukraine for as long as it takes. We are working with our allies and partners to provide Ukraine with the security, economic, and humanitarian assistance it needs.

The Biden administration today announced a new $3.4 billion security assistance package using Presidential Drawdown Authorities (PDA) to support Ukraine’s military operations. This further support includes key capabilities like air surveillance radars and Javelin anti-tank missile weapons that Ukraine needs to defend against the Russian offensive.

On-Again-Off-Again COVID-19 Lockdowns

A perfect storm of high inflation, Russia’s invasion of Ukraine, on-again-off-again COVID-19 lockdowns in China, and ultra-aggressive central bank rate hikes combined to roil markets worldwide. As a result, every significant stock and bond index posted losses in 2022.

While it’s clear that countries that acted fast with strict lockdown policies saved more lives and economies than others, they came with costs. These included significant social isolation, increased mental health problems, medical appointments and education disruption, and rising rates of domestic violence and violence against women.

Moreover, the impact of lockdowns varied from one pandemic wave to the next. In China, for example, harsh lockdowns eliminated COVID-19 locally during the first wave, but they lessened its spread when the virus arrived again in the second wave.

Ultra-Aggressive Central Bank Rate Hikes

Ultra-aggressive central bank rate hikes had an outsize impact on financial markets last year. This was primarily caused by investors’ expectations of how these policies would impact the economy and corporate earnings, especially if inflation continued to rise.

While the Fed’s monetary policy strategy has effectively tamed inflation, it also increased borrowing costs significantly. That, in turn, weighed on consumer spending and business profits. It also fueled fears of an economic slowdown and rising debt defaults.