Many investors will be full of regrets after a volatile 2022, especially those who piled into risky assets at the top of the market in November last year, only for them to crash from inflated highs.
The investment world has been turned upside-down this year, and not only by the Russia-Ukraine war.
We have also seen an energy shock, ongoing Covid lockdowns in China and, most important of all from an investment point of view, the end of the cheap money era as inflation returns after more than 40 years.
That finally killed off the longest US bull market run in history, as a dozen years of near-zero interest rates and fiscal and monetary stimulus came to an abrupt end and interest rates increased.
Money is no longer available in cheap abundance and investors have to be more careful with it, wiping out frothier corners of the market.
Perhaps a bigger shock is that safe-haven asset classes crashed, too. So, there is plenty to regret, but more to look forward to next year.
The US S&P 500 enjoyed a terrific decade, as tech companies Amazon, Apple, Microsoft, Tesla and Google-owner Alphabet turned into trillion-dollar companies. Or, in the case of Apple, Microsoft and (very briefly) Google, $2 trillion companies.
However, this year saw the S&P 500 drop more than a quarter into bear market territory, with the Nasdaq down a third.
Amazon, Netflix and Tesla have lost half their value this year, with Facebook (now renamed Meta Platforms) plunging two thirds.
Investors buy growth companies to share in their future profits, but when inflation explodes, it erodes the value of those earnings in real terms making them less attractive.
The outlook for US tech in 2023 now rests on consumer prices and interest rate movements, says Joshua Mahony, senior market analyst at online trading platform IG.
“Microsoft, Meta, Amazon and Google have all made gains lately, but those same names may be hit hard if inflation proves difficult to control,” he adds.
Equity markets now present a buying opportunity, says Stéphane Monier, chief investment officer at Swiss private bank Lombard Odier.
“As inflation and the threat of higher rates begin to fade, stock valuations and multiples will benefit.”
Easing financial conditions will boost sentiment and investors will start to look ahead for a cyclical recovery in 2024, he says.
Regret ratio: surprisingly low.
The bull run had to end at some point and long-term investors in US tech should still be nicely ahead. Tesla stock is still up 585 per cent over five years. Over 10 years, it has soared 6,869 per cent.
Watch: Why is everything so expensive right now?
War in Ukraine, soaring energy prices, lockdowns in China, a global recession and the strong US dollar were tough on emerging markets, which fell 17.43 per cent in the year to November 30, according to MSCI.
Yet, Mr Monier expects emerging equities to rebound once the US Federal Reserve “pivots” on interest rates. They may outperform developed markets as international investor appetite and confidence returns.
Regret ratio: low.
Everybody knew emerging markets were risky. The recovery will come.
Hardcore crypto investors don’t do regret. Like most cults, any setbacks are typically seen as another step towards the promised land.
Even Bitcoin’s crash from $67,000 to $16,500 has not dimmed enthusiasm for this largely useless asset class. Nor has the collapse of FTX and arrest of founder Sam Bankman-Fried on fraud and conspiracy charges.
Bitcoin actually rose on the news, as crypto investors saw this as another step towards regulation and respectability.
Crypto will continue to lurch from feast to famine, says Laith Khalaf, head of investment analysis at AJ Bell.
“The proliferation of coins and crypto ecosystems has been funded by a wall of blank cheque money that will be harder to come by as interest rates rise.”
Regret ratio: not as high as it should be.
Anybody who bought into the idea of a Bitcoin being “digital gold” should be seething with regrets after this year’s crash. If crypto investors do not realise the risks they are taking, there is no hope for them.
Nobody will regret holding the US dollar this year. At the time of writing, it is up more than 7 per cent against the euro, Australian, Canadian and New Zealand dollars, almost 10 per cent against sterling and nearly 20 per cent against the Japanese yen.
The greenback is the ultimate safe haven and it has been given a further boost by the Fed’s aggressive monetary tightening.
“It remains head and shoulders above the rest of the major currencies thanks to the Fed’s hawkish stance and a relatively stronger US economy,” says Fawad Razaqzada, market analyst at City Index and Forex.
The Fed has lifted its funds rate from 0.5 per cent to 4.4 per cent, giving investors a better return.
Watch: US Federal Reserve chief warns of 'pain' in reducing inflation
As long as inflation and interest rates stay high, so will the dollar, Mr Razaqzada says.
“The Fed will have to be quite dovish to cause the dollar to sell off significantly further from current levels.”
Regret ratio: zero.
The US dollar will inevitably fall when inflation eases. It’s had a great run, though.
Gold is supposed to be the ultimate “no regrets” investment because of its safe-haven status and reputation as a hedge against inflation, but this year it has been hugely disappointing.
After peaking at $2,074.60 on March 8, the gold price slumped below $1,700 in September and had recovered slightly to trade at $1,775 at the time of writing.
Gold is priced in US dollars and greenback strength has made it more expensive for buyers in other currencies, hitting demand, as have China's lockdowns.
Also, gold does not pay interest, while rival safe-haven cash does.
Gold could regain some of its lost appeal this year, says Mr Monier. “With lower rates, a weaker US dollar, and a reopening China, the price should rise.”
Regret ratio: surprisingly high.
Gold has been a store of value for more than 4,000 years, but not this year. It is worth retaining some exposure as a portfolio wild card.
After more than a decade of near-zero returns, cash is now flying with rates of 4 per cent a year or more now available, with no risk.
However, inflation is flying much higher, so the value of your holdings will still be falling in real terms.
Regret ratio: low.
Everybody should hold some cash and it's great news that savers are finally getting a return on their money. It still isn't a home for long-term wealth, though.
Investors expect equities to crash. Bonds, not so much. Especially by up to 20 per cent as happened this year.
Bonds could be back next year, says Kathy Jones, fixed income chief at Charles Schwab.
“After years of low yields followed by a brutal drop in prices during 2022, returns appear poised to rebound. Bonds may now provide attractive yields at lower risk than we have seen for several years.”
Ms Jones warns that it may still be “a bumpy ride” depending on “global central banks’ tightening policies, a volatile global economy and ongoing political uncertainty”.
Regret ratio: fairly high.
Bond investors expect to be shielded from volatility, rather than exposed to it. Yet, today could prove an attractive buying opportunity.