by Philip Pilkington
Thursday, 29
December 2022
Explainer
11:32

2022 was a disaster for ordinary savers

Only the rich can benefit from market turmoil
by Philip Pilkington
60/40 portfolio returns on hypothetical $10,000 investment, 2022. Source: BlackRock.

This year has been one of the most brutal in recent memory for those who hold savings. Typically, a saver who parks most of their money into stocks and bonds can expect a healthy return above inflation. The average return of a 60/40 portfolio — that is, a portfolio that is 60% invested in stocks and 40% invested in bonds — over the past 30 years has been around 8% or around 5.4% when adjusted for inflation. In 2022, the 60/40 portfolio delivered a return of -11.6% or -17.5% when adjusted for inflation.

This represents a huge loss of wealth for anyone with investments or a pension invested in markets. The problem is that every asset class is getting hit. The reason people invest in stocks and bonds is that when stocks go through a rough patch, bonds usually overperform. This smooths out the returns of the portfolio. But in 2022, stocks and bonds are getting butchered at the same time.


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The reason for this is twofold. For over a decade now, central banks have been engaged in so-called Quantitative Easing (QE) policies. These policies have driven interest rates to zero and pushed bond prices sky high. At the same time, the QE policies have juiced stock markets. But now, with inflation raging, central banks are pulling back from their QE policies and raising interest rates. The result is that stock and bond markets, both addicted to the loose money policies, get clobbered at the same time.

Meanwhile, there is one asset class that has done well out of all the turmoil: macro hedge funds. Macro hedge funds make big predictions about global economic events and bet accordingly. They became famous in the 1990s when the likes of George Soros stared down the Bank of England and broke sterling’s peg to the European Exchange Rate Mechanism in 1992. Soros’s bet against the pound was a classic in the macro hedge fund genre: he thought he could predict the British economy better than the Bank of England and made a large bet on it. As a result, he pocketed $7 billion for his investors.

During the cheap money period of the 2010s, macro hedge funds went into a lull. There simply wasn’t enough going on for them to make the big bets they needed, in order for them to do what they do best. But with a decade of global chaos facing investors in the 2020s, there is every chance that this could be a decade to remember for macro hedge funds — and other investment funds that undertake agile, contrarian investment strategies.

This raises a serious problem for savers: these non-standard asset classes are only accessible for wealthy people. It is not unusual for a macro hedge fund to have a minimum investment of $1 million. What this means is that the wealthy may be able to ride out the market chaos, while the average investor gets left behind.

This introduces the problem of income inequality into the market for savings. The wealthy gain access to the creative-thinking funds that can benefit from global turmoil, whereas average savers are stuck with the standard investment products that are falling apart. Inflation and global turmoil are awful for anyone who invests their money, but they are far worse for the average saver.

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John Dellingby
John Dellingby
1 month ago

The sad reality is that our elites have either learned nothing from the 2008 crisis or are actively trying to hurt the finances of ordinary folk to benefit themselves and their friends. My comment might be a bit harsh in regards intent, but it does feel like there’s so much wealth out there, yet it’s those who are getting by honestly who are being squeezed mercilessly, often to prop up failing systems and institutions.

Even outside of savers being screwed, you see this in the job market, particularly where there are shortages in “unskilled labour” for example. Let’s take health and social care where politicians and relevant businesses et al want more people working in it, yet will abjectly refuse to entertain the main reason why there’s a shortage in the first place, pay and conditions. Ditto for other areas too where we saw last year just how dependent we had become as a country on importing cheap labour from abroad. Did the CBI look into efficiency, more attractive employment packages etc? No, they demanded the government effectively bring back free movement.

Sorry for this rant (frankly it could have been longer), but when it comes to fixing economic issues, measures that would benefit ordinary folk always seem to get kicked into the long grass. Eventually something will give.

Andrew Buckley
Andrew Buckley
1 month ago
Reply to  John Dellingby

Totally with you John. And, in my view been going on a lot longer than just since the 2008 crash. Linked to all this was the move to having to have two in a family working to afford a house, increasing the income multiples in the late 1980’s had a huge inflationary impact on house prices and the subsequent “crash” didn’t really solve things.
The madness of increasing benefits and then in work benefits from Blair/Brown at the same time as the first big numbers of cheap workers coming in.
After 2008 we had the insanity of year after year of close to zero interest from the BofE which simply made borrowing too cheap and, surprise surprise, a rise in asset prices.
Another factor in the widening divide between low and mid-range wages is the percentage salary increase which means that even on 2%,3% or 5% the gap between the lowest and mid-range widens year after year.
Those of us with one house don’t really benefit as the increasing value is a paper value rather than “real”. Most of all this can, to me at least, be seen as a way to keep people buying, disposable income for “stuff”. Increasing debt to buy “stuff”. Keeping people quiet by falsely making things seem cheap, but mainly through abusing people in poor countries on a horribly low wage and then subsidising things at home (food stuffs for example).
Follow the money, who wins? Who are the major proponents of globalisation? We can call them the elites but globally it is a very small number of people, if you have money it is a doddle to make more (and I am thinking significant noughts here). And if you have money it is a doddle to game the system from lobbying to moving money around to simply ignoring any rules and buying people off.
All a bit of a wotsit really but socialism isn’t an answer, that just results in different elites, revolution just lets some others rise and we have a new “elite”, milking the sweat of others and somehow convincing them they are being looked after.
I think there is an unholly trinity unwittingly coming together at the moment with neo-marxists milking anything that could fracture the status quo (BLM, destroying families, global warming etc) linking well with rampant capitalism who see profit (green washing, forcing people to buy EV’s, paying lip service to any fad that gets publicity such as the Trans debate) and then a few people being fed a story and putting themselves at risk personally by actually doing the dirty work (ER, just stop oil, and risking life on a gantry or glued to a road) who are a bit like those climbing out of the trenches in wars.
But after this long rant (apologies and well done for anyone getting to this point) I am not totally despondent as I do think that the joint small people are, can, and will continue to push back and I do think that things will stabilise over the next few years.

Jonas Moze
Jonas Moze
1 month ago
Reply to  Andrew Buckley

From the Pharos, the Greeks, Romans, Mongols, Louis XVI, Napoleon, Victoria, Hit*er, Tojo, Mao, Stalin, et al….

People have tried to rule the world. Being a world of low tech and many nations this tended to be fluid.

Now Globalists, like the WEF, and particularly the top few in the WEF, are multinational, supranational really – in power and mindset. 4 Hedge funds control almost all the world’s money and corporations by controlling the shares through the investments they manage. The whole world is owned by 4 companies, Vanguard being one. Much more powerful than Nations – they own the political class too.

They also have tech Orwell could not even imagine.

Pilosi, Clintons, Obama, Blair – they went into politics with nothing, and on a modest income, are now worth hundreds of Millions – Owned.

The WEF is making the world a Neo-Feudal State. You will own nothing. They say so – look at their web site.

Steve Jolly
Steve Jolly
1 month ago
Reply to  John Dellingby

Well, in America, something will give when patriots with AR-15s show up at the gated communities and mansions of the likes of Soros, Bezos, Gates, Buffett, etc. and start looting and burning. Just to be clear, I’m not advocating murder or terrorism. Every one of those people should be kept safe and unharmed while all their fortunes are confiscated and their mansions burned to the ground. What they do afterwards, once their wealth and power is gone, is their business. Of course, the military will take over before things get too far out of hand and we’ll have some sensible compromise that restores public order by breaking the power of the aristocrats for the foreseeable future. Just a matter of reaching what I refer to as a ‘critical mass’ of public anger.

Last edited 1 month ago by Steve Jolly
CHARLES STANHOPE
CHARLES STANHOPE
1 month ago
Reply to  Steve Jolly

If 1789 is anything to go by ‘things’ can rapidly get out of hand, and “heads begin to roll”.

B Emery
B Emery
1 month ago

Yes, not sure gun led anarchy and mansion burning by mob would end well. In fact, I’m sure it wouldn’t. Plus, the guys he talks about would just off to their island in the sun out the way of the American torches and pitchforks……

CHARLES STANHOPE
CHARLES STANHOPE
1 month ago
Reply to  B Emery

However it may well end up like “The Flight to Varennes”!

Last edited 1 month ago by stanhopecharles344
B Emery
B Emery
1 month ago

I’m not hot on the French revolution, how did the flight to varennes end?
I predict they would flee on private jets, the gun armed lunatics would start looting anything that was fair game, organised crime would join in and hey ho it’s like the purge. Thankfully I feel only America would be stupid enough to bring that upon itself. Guys with money wait it out on their island. Do business in a country not undertaking the purge….

Last edited 1 month ago by B Emery
CHARLES STANHOPE
CHARLES STANHOPE
1 month ago
Reply to  B Emery

‘They’*got caught and returned, ultimately to be Guillotined!

(* Louis XVI & his Mrs.)

B Emery
B Emery
1 month ago

Thank you, I see, the Americans will be lucky, Louis may have avoided the guillotine had he had a private jet and a bunker in Hawaii.
I think the Americans might find they end up fighting each other instead of the ‘elite’. Mr Mahony said it best last week – ‘corruption has held it together,
Rather it will be the revolution to counter that corruption that will contribute to the civil war; that and rampant racism, and wokism and Qanon and the lizards and the paedophile baby eating and stuff like that!’
I liked that a lot.
I don’t think America is capable of the unity required to stage a revolution, more likely to descend into a civil war. Mr jolly might want to be careful what he wishes for.
If they do go for civil war though their government might have to retract its global tentacles for a while. That would be a Good Thing in my books. Especially if they retract them from the UK. Maybe they should go for it.

Steve Jolly
Steve Jolly
1 month ago
Reply to  B Emery

Oh I’m sure it wouldn’t end well, but tell me what else is likely to break the power of the global aristocracy? The American military is the only institution in this country that commands any level of public trust, so I surmise some general would take advantage of the situation for personal glory or try to save whatever can be saved, depending on his or her personality. I’m quite aware of the French Revolution parallel and I would expect it to end similarly, with a wildly popular military dictator. I’m not part of the gun wielding crowd, btw. Never owned one and probably never will but I am aware of their existence, and I won’t lift a finger to fight against them if it comes to that, because they’re no worse than the alternative, even if they’re no better. I don’t know many who would. As much anger as there is in America, there’s something far more common, but just as dangerous, indifference. Once a revolution got started, it wouldn’t really matter who started it or why. There aren’t enough people left who support the system as it currently exists. Anger starts revolutions. Indifference allows them to succeed. I personally would enjoy seeing the aristocrats get their comeuppance knowing full well everyone would pay a price for it, but then I’ll freely admit to being a bit of a cynical jerk.

B Emery
B Emery
1 month ago
Reply to  Steve Jolly

Good answer, I like it. I get you, I don’t know how you take them down a peg or two, I do think America has a lot of problems. I’m in the UK I’m not sure that’s what we need here. On the plus side if you guys do that it would cut down on the American exported politics over here. May save us a full scale nato war. Also a plus.
What would you guys do about Russia and China then though? I’ve read a million crazy Americans calling to smote China. You need to decide whether the enemy within is more dangerous than them. You bought the US down to the level of anarchy? China and Russia would have a field day.

B Emery
B Emery
1 month ago
Reply to  Steve Jolly

Mr jolly, I’m not sure that can be a solution. That’s not very measured.
If we don’t want people accruing massive wealth then we really have to address the capitalist system. Do we want to do that?
I think if we disbanded massive globalist organisations like the un, the imf, the world Bank, trilateral, wef, etc etc I can’t even remember all the names right now, if we said fine, let’s keep capitalism but no more globalist institutions, that might solve a lot of problems.
I’m afraid with your proposal you would have to decide what is to much, what is the maximum one person can accrue? For every bill Gates there’s a musk. Although I have no good feelings for Bill Gates arguably Microsoft has made massive advances in tech. If we go after gates we would also have to go after musk.
If we want to make people equal in wealth that’s getting a bit communism.
We run a business, if by some chance we can grow it, it would be hard work, I’d be pissed off to have it taken from me when it hit a certain level. People that have reached critical mass and have guns at the gates aren’t likely to calm down enough to let the people out the mansion first. There’s a pretty nice big victorian farm house on the farm I live on, I rent a little place on it, the lady that owns it owns a fair bit of property, more than one farm, her family has built it up over generations. Does she have too much? I don’t begrudge her it, personally. Her family are very good to us. I don’t know what the solution is, but I’m afraid I can see many problems with yours. Have you been on the sherry?

Steve Jolly
Steve Jolly
1 month ago
Reply to  B Emery

It’s a fair point. Shutting down the globalist organizations would be a good start. I doubt it would be enough. Breaking up the largest corporations and eliminating open borders and unrestricted free trade and free foreign investment would also help. I doubt it would be enough to get the DAVOS men out of politics. In my honest opinion, the corporate form of business must be eliminated entirely. Eliminating all corporations would be necessary, IMHO, to restore capitalism to a state where people could be held truly accountable for the damage they can cause and the power they wield. A person who owns something can be held accountable for the damage they do according to the law, in court, up to and including having everything taken from them, through the process of law. A person who controls a corporation is shielded from losing their fortune and their generational power. This must change. Once the fear of losing everything is made real, there will be a check on the power of the super elite. That’s the closest thing to a solution I have, and I doubt it could be accomplished with anything short of a revolution. Also, I’m certainly not talking about your landlord or anybody else you know. I’m talking about the top 1% whose influence keeps our governments from passing the laws most people would like to see passed. If they won’t get out of the way, somebody has to move them, and while that’s never a pleasant process, it’s sometimes necessary. It isn’t the money that matters. I could care less who has how much. It’s the power and how it’s used to influence political processes that are supposed to be democratic. There needs to be either some method of separating the money from the power, or a hard limit placed on both. Either is acceptable to me. Neither is likely to be accomplished without a fight.

Last edited 1 month ago by Steve Jolly
B Emery
B Emery
1 month ago
Reply to  Steve Jolly

I think that’s an excellent idea to be fair. The whole first part. Apart from maybe the free trade actually to edit.
However, on the revolution front. America has pretty serious divides, a lot of extreme ends of politics, there’s nothing to say that hard left nutters that think everyone should have the same won’t start smashing up anything they view as wealth. Revolutions are messy. People join together but the after the divisions emerge again. You may find America would dissolve into civil war, not revolution. Also, big money is well known for successfully hijacking protests or funding them straight up, you may find they have more money, so more guns, more mercenaries. Can buy a government, an army etc. Just a thought.
You’re still pretty young democracy wise maybe? Over here and in Europe we’ve all already kicked the shit out of our aristocracy at various points, maybe it’s just part of it. Maybe you should. I don’t know. I’m conflicted.

Last edited 1 month ago by B Emery
B Emery
B Emery
1 month ago
Reply to  Steve Jolly

Also. I’m sorry but people keep saying soros. You do all realise that the guy that funded this website got half his money to found his massive hedge fund from Soros investment?

‘At the time, Marshall Wace was one of the first hedge funds in London.[6] The company started with $50 million, half of which was from George Soros.[6]’

https://en.m.wikipedia.org/wiki/Paul_Marshall_(investor)

Last edited 1 month ago by B Emery
CHARLES STANHOPE
CHARLES STANHOPE
1 month ago
Reply to  John Dellingby

And there will be :”weeping and gnashing of teeth”

(Luke 13:28 & others.)

chris sullivan
chris sullivan
1 month ago
Reply to  John Dellingby

NOT harsh with regard to intent !! Humans per se are ultimately narcissistic – tis rather obvious methinks !

Alison Wren
Alison Wren
1 month ago
Reply to  chris sullivan

Apart from those who sacrifice their own well-being to care for the small humans and the older vulnerable ones………

Roy Mullins
Roy Mullins
1 month ago

Investing is for the long term – tens of years if you are investing for a pension. There has been huge growth in world markets in the last 25 years and 2022 has brought a slight pull back. You can’t expect growth every year. The pull back provides a buying opportunity. Think long term – don’t fret over the occasional pull back. You can invest in absolute return funds if you want to but these ‘hedge fund’ type assets don’t guarantee good returns every year. Stick with a mix of equities, bonds and cash with some money in property, resources and absolute return

Last edited 1 month ago by D M
Jonas Moze
Jonas Moze
1 month ago
Reply to  Roy Mullins

A great many believe that day is over, of growth by passive investing. For that to happen the GDP and economy Must Also Grow more than inflation – must grow in ‘Real Terms’.

There is very good reason to think GDP growing faster than inflation is over.

Energy consumption has Always been the indicator of wealth. It is directly 1 to 1 correlation to back to the stone age.

Energy growth has stalled and is reversing, there are many proofs of this. From this one may know, GDP will stall and reverse.

The days of sticking money in a fund 30 years and then retiring on a good income are over.

Roy Mullins
Roy Mullins
1 month ago
Reply to  Jonas Moze

Good returns are a reward for imvestment risk. If entrepreneurs don’t take any risk in investing to save civilisation and save the planet we are truly doomed but I don’t believe for a second that this is the case !

Peter B
Peter B
1 month ago
Reply to  Roy Mullins

Absolutely. The article is nonsense.
He’s basically saying “it’s terrible that ordinary investors can’t compete with market professionals to hedge and trade so they can try to generate profits during market downturns”.
Since when should an ordinary pension saver be trying to engage in such things and time the market over the short term ? Pension savings need to be made over at least 20 years and a long enough period will smooth out most of the short term turbulence.
I do hope he doesn’t have a second job as a financial adviser …

Nicky Samengo-Turner
Nicky Samengo-Turner
1 month ago

Not entirely correct as institutions give retail savers access to ” fund of fund” hedge funds: 99 pc of investors have no clue what hedge funds do, nor of their use of credit lines from prime brokers, and use of derivatives including synthetics, etc. The careful selection of ‘ long only’ asset managers works perfectly well, if one chooses the right ones by undertaking ones own diligent research.

CHARLES STANHOPE
CHARLES STANHOPE
1 month ago

Sad to see that Simpson’s Tavern has suddenly closed!
A fountain of gossip & gluttony since 1757, the year of Plassey!

Steve Murray
Steve Murray
1 month ago

It’s been granted protected status whilst attempts to re-open it are made.

CHARLES STANHOPE
CHARLES STANHOPE
1 month ago
Reply to  Steve Murray

Splendid!

Martin Layfield
Martin Layfield
1 month ago

It’s been a lousy 15 years for savers, although this year really did take the cake

Roy Mullins
Roy Mullins
1 month ago

If you have had money in a pension fund, as you should have done if you are a serious saver, it will have grown and beaten inflation over the last 15 years

Jonas Moze
Jonas Moze
1 month ago
Reply to  Roy Mullins

The financial industry has a Maxim: The paradigm has changed.

”Past Performance Is Not Indicative Of Future Results”

Kevin R
Kevin R
1 month ago

Interesting article which, nevertheless, seems to overlook the idea that the whole point of investing in the stock market is to benefit from its volatility. Markets have never continued on steady, predictable climbs for indefinite periods and they never will. Sure 2022 may have been a bad year but it all depends on what happens next; anyone who invested spare cash this year and can afford to hold will be quids in if / when the markets rebound. It has always been thus.