By Larry Swedroe, Head of Financial and Economic Research, Buckingham Strategic Partners

While each year features new twists on the age-old investment stories, smart investors know how to apply the same basic principles to every event. That’s why one of my favorite sayings is that there’s nothing new in investing, only investment history you don’t know. Last year, however, investors did experience something that happened for the first time in history. In my top 10 lessons of 2022, I’ll explain what we learned from the markets and why sticking to a well-thought-out financial plan remains the best strategy. 

Lesson 1: Just because something hasn’t happened doesn’t mean it won’t.

Last year was particularly difficult for many investors because it was the first time that both the S&P 500 and 20-year Treasury bonds experienced double-digit declines. Although this was a first, investors should not be taken off guard. There are five other years in history — 1931, 1969, 1973, 1977 and 2018 — when both produced negative returns. Despite the historical precedent, the losses were a big surprise for investors who, influenced by recency bias, came to believe that safe bonds were a sure hedge for risky stocks. 

Lesson 2: Young, unprofitable companies are not good investments.

In 2022, the finance craze was investing in disruptive, innovation companies with recent IPOs. By the end of the year, these investments had all repriced lower. Investing in young companies that are unprofitable but have high investment spending — making investors think they are poised for growth — has produced poor returns historically. And while exciting investment narratives that capture the public’s attention may be different, the basic principles of investing are always the same. 

Lesson 3: Markets are less liquid and thus more volatile.

Last year we saw heightened volatility across markets, even those considered safer, including Treasury bonds and municipal bonds. Investors should be prepared for greater volatility because, for many reasons, markets have become less liquid. When there is low liquidity, big market swings are much more likely because it’s harder to buy and sell a security without affecting its price. Accepting that market swings are becoming more frequent should help investors stay the course. 

Lesson 4: Gold is not an inflation hedge over your investment horizon, and neither is bitcoin.

Although gold had performed extremely well in the past few years, in 2022 it disappointed investors, just when an inflation hedge was needed most. Last year proved that buying this shiny security won’t save your portfolio from inflation in the short run — though it might if your investment horizon is at least 100 years. The same goes for bitcoin, which cryptocurrency investors and advocates have also promoted as a hedge against inflation. 

Lesson 5: Value investing is not dead.

Value investing is a time-tested strategy in which investors buy securities that appear cheap relative to some fundamental anchor. Although decades of evidence have demonstrated the benefits of value investing, many investors fled value stocks after they underperformed for a relatively short four-year period starting in November 2016. But those that stayed the course were rewarded: between November 2020 and December 2022, value stocks once again outperformed growth stocks around the globe. 

Lesson 6: Be aware of recency bias – don’t invest in something just because it has done well.

Historically, investors tend to buy yesterday’s winners (after the great performance) and sell yesterday’s losers (after the loss has already been incurred). Unfortunately, a return in a past year doesn’t necessarily predict the same return the next year. For example, in 2021, the Dow Jones Select REIT index outperformed the S&P 500, with a 45.9% return compared with 28.7%. In 2022, however, it underperformed, with a -26% return compared with -18.1% for the S&P 500. 

Lesson 7: Diversification is as important as ever.

After the Great Recession, many argued that diversification no longer works because risky assets have become too correlated. However, diversification benefits also come from the dispersion of returns, or the range of returns in a group of stocks. Last year we saw a wide dispersion of returns once again, consistent with the last 20 years, showing that diversification still has strong benefits, particularly international diversification. For example, U.S. small-value stocks outperformed the S&P 500, and international and emerging markets stocks did as well. 

Lesson 8: Active management is a loser’s game in bull or bear markets.

Last year was another in which the majority of active funds underperformed even though proponents claim active managers outperform in bear markets. And even when active management does lead to an investor’s portfolio outperforming benchmarks, it’s typically short lived.

Lesson 9: A liquidity premium is not a free lunch — it’s compensation for taking risk.

Illiquid assets are those that cannot easily be converted into cash, such as private equity, venture capital, reinsurance risk and private credit. Because of this risk, investors require some additional compensation when investing in them. That’s known as a liquidity premium. The risk becomes greater during difficult economic times when investors may be desiring liquidity. Last year reinforced that investors should only allocate what they can afford to illiquid holdings. 

Lesson 10: Ignore all market forecasts.

Market movements are often dominated by surprises, which, of course, can’t be predicted. For the Federal Reserve, the big surprise in 2022 was that inflation turned out to be higher than expected. In fact, inflation as measured by the Fed’s preferred price index ended up being more than double its forecast for the year. As economic forecasts are often wrong, it’s unlikely that market strategists will be able to forecast future performance. The lesson for investors is to tune out predictions. Instead, stick to your investment plan, focus on diversification, and rebalance your portfolio when needed. 


Every investor makes mistakes. However, smart investors don’t repeat the same mistakes and expect different outcomes. By utilizing the 10 lessons 2022 taught us, you can avoid making common investment errors. It’s also important to know your financial history and have an investment plan backed by evidence. If you don’t have a strategy, read my book “Investment Mistakes Even Smart Investors Make and How to Avoid Them” or schedule time with Cogent Strategic Wealth.


For a more detailed look at Larry Swedroe’s 2022 investment lessons, see his recently published article on

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