2022 Investing: Larry’s Perspective

I had intended to post this in January but have been very busy with my regular work and well as a special project. But I hope late is better than never. First some comments on last year.

2021 was an incredible year for stocks in many ways, most importantly in total returns. The S&P 500 index returned 28.7% while the S&P/TSX Composite came in at 21.7%. On the flip side, it was a miserable year for bonds with losses across many bond indexes. Negative bond returns had a significant dampening affect on 2021 all-in-one balanced ETF returns as illustrated by these Vanguard results:

Balanced ETF Returns2021
VEQT (100% stocks)19.66%
VGRO (80% stocks)14.97%
VBAL (60% stocks)10.29%
VCNS (40% stocks)5.80%
VCIP (20% stocks)1.46%

My Top Picks for 2021 represented one way to help address poor bond returns. I stated the following:

“Short of buying junk bonds, the only way to have a shot at earning a decent return is to own stocks and all stocks are volatile. But, for those investors with a long-term time frame who can handle some increased volatility, modestly increasing stock allocation through diversified, high quality, dividend paying, “blue-chip” stocks may be worth considering. Why? Because, over the long run, owning profit generating companies with a history of earnings and dividend growth gives you a better shot at earning a return than bonds that yield 1%. And, in theory anyway, these stocks tend to be less volatile that the broader stock market.”

These are the ETFs I suggested a year ago and their 2021 returns:

Dividend Stock ETF Returns2021
Canadian High Dividend Stock ETFs
VDY36.73%
XEI   35.60%
ZDV28.59%
US High Dividend Stock ETFs
VGG    22.40%
ZDY23.03%
x-NA High Dividend Stock ETFs
VIDY    14.00%
ZDI12.14%

Recommendations for 2022

After two remarkable years of market performance in the midst of a global pandemic, what should we expect in 2022? As I write this note, inflation (Wealth Killer #3) is spiking, central banks appear poised to raise interest rates and there is a threat of war in eastern Europe. Largely driven by these factors, the S&P 500 is off 8% year to date. Does this suggest the market will continue to fall, perhaps significantly? Not necessarily. In my view, the market is just as likely to move higher from here. As always, we must expect the unexpected. And remember that, as stock market investors, living through frequent bouts of uncomfortable short/medium term volatility is the price we must pay for the opportunity to earn good returns over the long term.

As you know, I believe in: (i) long term ownership of great businesses by holding stocks directly or through low cost index ETFs and (ii) maintaining an asset mix that matches your risk tolerance, time frame, objectives, etc. (see Chapter 9 for a refresher of asset mix).

This simple, perhaps boring, but very powerful investment philosophy does not change with market ups and downs. Therefore, you may not be surprised that, for 2022, I am recommending the same ETFs that I have chosen as “Top Picks” in the past:

  1. All-in-one balanced EFTs of the type offered by Vanguard , RBC iShares, BMO and others (these were my top picks in 2019 and 2020)
  2. The same high dividend stock ETFs that were my top picks last year

When investing in bonds and bond ETFs, keep in mind that shorter term bonds will not be negatively impacted as much as medium and longer term bonds if interest rates rise.

Check These Out

Do you ever think of bailing out of stocks and jumping back in when things settle? Watch this excellent video from my FAIR Canada colleague Preet Banerjee. Here is a detailed article on RRSP investing from another colleague, Dale Roberts, of the wonderfully named website www.cutthecrapinvesting.com


If you have any questions or comments, just email me at larry@larrybates.ca