2022 went by extremely fast, but it packed a punch.
It felt like this year had a decade-worth of newsworthy moments: Russia’s invasion of Ukraine, global inflation leading to consecutive interest rate hikes, the death of British monarch Queen Elizabeth II, the EU gas shortage and glut, increased tensions in the Taiwan Strait, and Elon Musk’s Twitter takeover.
It appears that next year, we at Morningstar resolve to sell losers, pick winners, and save for our children!
I, for one, resolve to use Morningstar’s director of personal finance Christine Benz’s bucket system to set up my spending for the year. I also plan to re-read most of these great investing books!
Here’s what some of my colleagues from across the globe have planned for the year ahead.
So Long, Losers
Sylvester Flood, Senior Editorial Director
U.S.
My resolution is to sell my losers—stocks that tanked and whose intrinsic value by all measures are unlikely to recover. I have three stocks in my portfolio that qualify. There is also one fund. It hurts to admit one’s mistakes!
Bringing Up Baby (and Her RESP)
Ian Tam, Director of Investment Research
Canada
This year our family had our first child and let me tell you, she is adorable. Though it’s hard to imagine this tiny creature doing anything aside from crying, eating, and pooping, I’ve been told by experienced parents that this next stretch of life is going to go by like a blur.
And so, my resolution for 2023 is to ensure that her education savings account (in Canada known as a Registered Education Savings Plan or RESP) is set-up and fully invested. My hope is that over the next eighteen years the continued disciplined contributions coupled with compounding returns will set my little one up comfortably for her foray into post-secondary education. As it will be quite a while until we need to use these proceeds (hence a longer investment time horizon), I’ll have the benefit of being able to invest a bit more aggressively at the outset, then ratchet down risk as we get closer to her going to university. Don’t worry little one, I’ve got you covered.
Guess Who’s Not Coming to Dinner?
Larissa Fernand, Investment Specialist
India
My highest discretionary spend in 2022 was on takeout and restaurant dining (not my grocery bill). No matter how hard I tried to limit my outgoings, it was futile. So I am going to change the narrative for 2023.
I no longer will fix a budget that permits me to binge on outside food, because I violate it and feel terrible, but still do it again and again. In fact, I won't think in terms of money anymore. I will now look at it in terms of work hours. Here’s my 3-step process for 2023.
Step 1: Calculate my hourly paycheck.
Step 2: Every single week I shall do an audit on my "eating out".
Step 3: Convert the amount of money spent into the equivalent hours of work for that week.
What I hope to achieve: Looking at it from a different lens may help me spend less, and cook more frequently.
Back to Saving for the Future
Susan Dziubinski, Investment Specialist
U.S.
While our triplets were in high school, my husband and I spent money like it was water. New band instruments! Laptops! Another streaming service! College tours! After successfully moving our three kids into their respective colleges this fall (and all the costs that went with it), my husband and I are committed to gaining control over our spending in 2023. Do we really need all these streaming services and cable? What about that land line we never use? And why are we paying professionals to fertilize our lawn multiple times each year and it still looks like that?
World War Fee
By Andrew Willis, Senior Editor
Canada
I’m declaring war on fees. And not just within my portfolio, but around it as well. It was once okay to charge around $5-$10 to make a single stock transaction or around $15-20 for an options contract, but this was before these past few years.
The growing popularity of investing topics on social media, especially Reddit, Youtube and Tiktok, accelerated over the wild trading sessions of the pandemic. There was exponential growth in users on wallstreetbets, for example, and with all the memes and terrible advice also came great discussions that empowered investors by sharing information on reliable exchanges with reasonable fees (like $0-3 for both stocks and options, and preferably no ‘payment for order flow’). A generation of investors and likely generations to come now have higher expectations from their brokers.
Another way I’m cutting down on trading fees is to simply buy fewer individual stocks. Even the expensive exchanges often don’t charge for ETF purchases that you pay management fees on. And I’ll be taking another look at those fund fees, relative to performance – because this was a great year to see if active management pays off.
Gone With the Cash
Sara Silano, Editorial Manager
Italy
Rising interest rates took a toll on the stock and bond markets in 2022, so I leant toward cash this year – much more than I did in the past years.
So my 2023 financial resolution is to reduce the liquidity in the portfolio, because on an inflation-adjusted based this is dead money. The old rule of thumb for people who are still working is to have an emergency cushion equal to three to six months' worth of living expenses. As we are in a period of great economic uncertainty, I prefer to have a little more, maybe a little closer to a year's worth of liquid reserves.
In reducing the liquidity in my portfolio, I’ll try to find undervalued recession-resistant stocks (or funds that invest in these stocks). These companies tend to be relatively immune to economic cycles, because they often have durable competitive advantages (Economic moats) that allow them to maintain reliable cash flows over time. Industries that are relatively immune to economic cycle include healthcare, consumer defensive, and utilities.
The Good, the Bad, and the Ugly of Knee Jerk Responses
Dan Kemp, Morningstar Investment Management’s Global CIO
U.K.
As we approach 2023, I’m reminded of my grandmother’s advice: ‘it will only get worse if you pick at it’. While this wisdom was directed at various boyhood injuries that accompanied a rural childhood in the 1970s, it is an important mantra in the global financial centres of the 21st century.
Volatile capital markets create surprises for investors. These surprises provoke predictable responses in investors that can have devastating consequences. Chief among these is the ‘flight’ response, characterised by the liquidation of a portfolio to prevent further surprises. Once we have sold our investments, we tend to be reluctant to re-engage in investing, resulting in a lower probability to reaching our goals.
In contrast, the ‘freeze’ response encourages us to avoid our portfolios. Although less likely to result in long term damage, this response can prevent us from accessing attractive opportunities.
The third response – to ‘fight’, manifests itself as a tendency to make too many changes. This response is fuelled by overconfidence and so of particular danger to professional investors. It is into this situation that my grandmother speaks most clearly. Increasing trading activity is more likely to reduce rather than enhance returns, or to put it more clearly: it will only get worse if you pick at it.
