Obstacles can be
An important part of growth. 
Be thankful for them.

I know no one who believes 2022 has been an easy year.

Individuals trying to grow their investments have been met with the compounding impacts of the aftershocks from the COVID-19 pandemic, the ongoing war in Ukraine, record-breaking inflation, and rapidly tightening monetary policies from the Federal Reserve.

Households trying to preserve wealth have experienced the worst year for a risk-managed, 60% equity, 40% bond portfolio since 2008. They have also been stung by the impacts of inflation, which for some have meant larger-than-expected portfolio withdrawals to purchase necessities like groceries and gas.

Both businesses and individuals who have relied too much on debt to finance expenses have gotten a cold shower in the form of rising interest rates. When interest rates are almost at 0%, using a little too much debt here and there doesn’t seem that dangerous. But when rates are rising every few weeks, people must confront a much higher interest payment and, hopefully, reconsider a leverage-based spending plan.

The technology sector has been hurt perhaps worst of all. S&P 500 mainstays like Meta (cutting 11,000 employees), Amazon (cutting 10,000 employees), Cisco (cutting 4,000 employees), have been forced to have widespread layoffs, in some cases for the first time in their history. And let’s not forget the ongoing dumpster fire that is Twitter, or the Crypto Winter that is starting to resemble more of a Crypto Wasteland.

It's easy to be thankful for blessings like friends and family who love us unconditionally (hopefully in spite of Thanksgiving dinner arguments), a stable job, leftovers in the fridge, and a roof over our heads. But how on earth can anyone be thankful for the challenges that have destabilized so many people?

For people trying to grow their wealth, 2022 has been a rare chance to reinvest dividends while stock prices are low and invest new money in stocks or funds that are trading well below their January prices. As long as you don’t have to take withdrawals from your investments – and people under the age of 59 ½ can’t access IRA or growth within Roth IRA accounts without penalty anyway – you have time to wait for your accounts to recover. In the meantime, the depressed prices in the stock market mean that you can invest in companies or indexes while they are priced at a rare “discount.”

For people needing to preserve wealth, or maintain emergency funds, 2022 has shined a light on perhaps the best instrument for this purpose in the American financial system: the Series I Savings Bond. Series I Savings Bonds are backed by the Full Faith and Credit of the United States and are guaranteed to keep pace with the six-month inflation rate. These bonds spent six months this year earning an annualized rate of 9.62% and are now paying 6.89%. Demand for these bonds is forcing the government to improve the only website where they can be purchased – TreasuryDirect.gov – and consider legislation to make them more accessible during periods of high inflation.

For people risk-managing portfolios, this year has shown everyone what not to do. Holding bonds within mutual funds or ETFs has always come with a warning label: when interest rates rise, your bond fund is going to fall in price. This year has shown how problematic this can be. As yields from short term Treasuries have climbed over 4%, the US aggregate bond index has fallen over 13.5% year-to-date (as of this writing).

How can we avoid this? By holding individual bonds using ladder or bullet strategies that prevent an investor from having to sell lower yielding bonds at a discount. This year has also been proof-positive for the utility of fixed, fixed index, and Registered Index Linked Annuities to protect some or all of an investor’s principal.

For many years, the tech sector has had a youthful “making the world a better place” and “move fast and break things” exuberance. This posture has always betrayed a combination of naivete, hubris, and immaturity. As a result, it has been a petri dish for both stratospheric growth and greed. Until this year it’s been hard to spot the rot in the foundation due to seemingly never-ending stock price appreciation.

The first prolonged economic contraction since the Great Recession has worked in some ways like a low tide exposing previously unseen navigational hazards. Once-attractive but super risky investments like crypto currency, private equity, and objectively useless apps suddenly look exactly like what they have always been – a bad place to put money you don’t want to lose.

All of these lessons, as difficult as they have been for so many people to learn, can be applied right now. The same way someone getting in shape might be sore after a workout, the pain we’re all feeling right now is actually a sign that we’re growing.

Individuals can use these challenges as a motivator to implement more anti-fragile financial strategies. People can also look more critically at their sources of financial advice (hint: it isn’t celebrities or professional athletes).

Governments can look at their regulations and see what is working (Series I Bonds) and what is not (an understaffed IRS that needs years to process amended tax returns and has no one available to answer the phone).

“What doesn’t kill you makes you stronger” is a cliché for a reason. It’s true. This Thanksgiving, we can choose to be grateful for all of the hardships we are enduring. The strength we earn from surviving them will help carry us into the next expansion cycle. Here’s hoping that when that happens, we can avoid collective amnesia about how we got there.

Happy Thanksgiving!