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Investing review 2022: FTSE 100 and other indexes


www.gradragstoriches.co.uk

Investors are glad to see the back of 2022.


War, supply shortages, inflation at its highest level for 40 years, interest rates rising fast and to heights not seen for decades, a bear market in equity, a historic sell-off in bonds, a collapse in cryptocurrencies, a lingering covid pandemic, a cost of living crisis. The negative list goes on….


How did your investments perform this year?


If you have been following Grad Rags to Riches ‘Three Simple Steps to Riches’, you will have made money in 2022. Read on for the good news!


Back in blog 10: What is a Personal Financial Plan? we put together a sample financial plan for Conor who had recently left college and started work. The simple plan outlines his financial goals, budget and savings strategy, and investment strategy.


Imagine Conor started this plan in January 2022 as a passive, buy-and-hold investor. He understands that the current financial recession and ‘stock market crash’ means he is buying equity at sale prices; buying low and selling high way in the future. He is not influenced by the media reporting daily losses, or warning of future losses. He cuts out this noise and sticks with his plan.


Conor pays 5% or £80 each month (£100 before tax) into his pension and the employer doubles this to a total of £200 per month. At the end of 2022, he has sacrificed £960 of his hard-earned money into his future wealth. what is it worth in January 2023?


Imagine the money went into the Vanguard Global Equity fund which was down 8% in 2022:


Vanguard Global Equity fund  2022  gradragstoriches.co.uk

Conor paid in £960 and now has £2,336, an increase of 143%!


This pot of cash is now safe inside a pension and cannot be taken away, it is his pot of cash. He cannot access it until age 57 currently, but the good news is that its value will continue to grow as the Vanguard Global Equity fund grows, and it will profit from the magic of compound interest and tax benefits.


If Conor had reached the point of paying off his debt and building his emergency fund at the start of 2022, he would have also invested £260 per month into a cash LISA. At the end of 2022, he would have paid in a total of £3,120, but with the tax back bonus paid by the government, that would now have a total value £3,900.

A profit of £780! Not bad for a so-called ‘Horribilis Annus’.


Let’s look in more detail at how the market in general behaved in 2022.


Index returns in 2022


Index returns 2022  gradragstoriches.co.uk

The closer an index was related to technology stocks, the worse it did. With a heavy weighting to technology stocks, the Nasdaq fared the worst and the S&P 500 also suffered one of its worst calendar year declines ever.


UK equity fared better in 2022 helped by a sharp rise in share prices of energy companies and miners; sectors that have benefited from Russia’s decision to plunge Europe into a gas supply crisis. BAE Systems was the best-performing FTSE 100 stock during 2022; the defense contractor’s shares have surged by 55% during the last year.


Most Bond funds rallied in 2022′s final quarter but not enough to avoid a historically bad year. Bond prices have an inverse relationship with interest rates which means when interest rates rise, bond prices fall, particularly long duration bonds.


Gold just held its own over 2022 (+0.08%) and Bitcoin tanked (-64%). The old saying ‘cash is king’ has been prominent this year with interest rates on savings accounts rising from a meager 0.1% to around 4%. Good news for your Emergency Fund, but with inflation running at close to 11%, this is still a loss in real terms. At least there is security in cash.


This is a snapshot of one year - the short-term picture. Passive investing is about the long term; 10, 20, 30 years. Even over the short-term period of 5 years, the S&P 500 has returned 39%, and the All World Equity index 29%.


The total return includes dividends and interest


The FTSE 100 index regularly quoted on TV, radio, and in financial media, is the price return index; it does not include the income from dividends paid by the companies. This is also true of other indexes quoted by the media, and it does give a distorted view of investing returns.


For example, if instead we look at the total return FTSE 100 index, including dividend income, we see a stark difference in overall performance:


FTSE 100  gradragstoriches.co.uk

At the start of the year 2000, the FTSE 100 opened at a high of 6950. 19 years later, the index stood at 6968; a return of just 0.6%.


However, this is based on the price return index, which does not reflect dividend income. The total return index tells another story; if you include dividends the return is actually 96.3% over the same period, or 3.54% per year (according to Schroder).


UK large-cap companies have a tendency to pay large dividends. Right now the FTSE 100 index has a dividend yield of 4.9%, higher than all of the other major global equity markets. That means investors in the index are currently receiving an annual return of 4.9% based on dividends alone, in addition to the price return indicated by the FTSE 100 index.


Whenever looking at the performance of an index over the long term, it is always beneficial to check whether the index is showing you the price return or the total return. As we have seen, it can really pay dividends!


Vanguard Index Funds 2022


These Vanguard index funds are accumulator funds i.e. they do include dividends or interest which is paid back into the fund rather than being paid out as income. Also, the Lifestrategy funds have a bias towards UK equity, hence the slightly better performance this year compared to the FTSE Global All Cap fund:


Vangaurd index funds 2022 gradragstoriches.co.uk

Again, the short-term picture isn’t great; £10,000 invested in the Lifestrategy 100 fund in 2022 is now worth £9,370. But, passive investing is about the long term; Buy and Hold, Time in the market not timing the market. £10,000 invested in the Lifestrategy 100 fund over 5 years is worth £13,800; over 10 years is worth £26,800 (excl fees).


Investing returns forecast for 2023


gradragstoriches.co.uk

It is January 2023, the investment strategists are rolling out their year-end forecasts for the S&P 500 and most are forecasting a gain for the year. Considering the market is up about 8 out of 10 years, forecasting a gain doesn’t require much courage. Indeed, repeatedly predicting up-years is an easy way to be right 80% of the time; a great career move, but ultimately meaningless for investors.


Last year’s predictions are telling; here is where the ‘sharpest brains’ on Wall Street predicted the S&P 500 would end 2022:

BMO 5300

Wells Fargo 5200

Goldman Sachs 5100

J P Morgan 5050

It is currently running at 3808…Most forecasts aren’t worth the paper they’re written on.


Bonds have had a historically bad year, but like equity, they do have bouncebackability. Dump your bonds or stock now for cash and you may crystallise a loss that currently only exists on paper…or you may save yourself more pain if it turns out we are in for a rerun of the 1970s…where’s my crystal ball?


Forget trying to play the market, listening to the experts, and following the so-called trends.

Invest in low-cost diversified global index funds, set up your monthly direct debit into your L/ISA and Pension to enjoy great tax breaks, then switch off your laptop and go and enjoy life. Leave the magic box to do its thing over the long term ie make you WEALTHY!


Investing is a long-term game.

Buy low, sell high.

Be greedy when others are fearful.

Buy and Hold

Time in the market not timing the market


Keep control of your finances in 2023


The cost of living crisis is already affecting most people and 2023 is not looking any better. Food prices are still going up, gas and electric prices will rise again in April, and if you have to go back into the mortgage market you will be due a big rise. Now more than ever you must try to keep control of your spending. You can find a number of blogs on Grad Rags to Riches which will help focus your attention (Section: save and protect) including 'what is the 50/30/20 budget?'.


When you are planning for 2023, ambitions and hopes are great, but realism is essential. You have to know where you are at with your finances. If you have never written it out in detail before, it’s good to just write down what your income is, what your debts are, and your expenses. Look back over the last few months and see what you have actually been spending money on, some of it may surprise you, and some of it may throw up things where you are going to say “I’m going to do less of that”.


If you can’t easily change your budget to cut back and are struggling with debt, then the first thing to do is to talk to a debt adviser to get some help. Debt advisers are very good at seeing the bigger picture, and in some situations, they may be able to suggest extra income you could claim.


There are millions of people in this country that are not claiming benefits that they are entitled to; people that aren’t claiming universal credit; people that are getting universal credit but aren’t claiming council tax support because they thought that was all included in universal credit.


By keeping in control of your finances and not hiding your head in the sand, hopefully you can avoid debt, keep your head above the water, and plan for better times.







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