January 2022 Portfolio Review

So, this is what sequence of returns risk looks (and feels) like! It was an absolutely atrocious months for all asset classes (save one), with heavy losses for all of the sample portfolios, whether  benchmark or RP-inspired.

2022/01 Portfolio Review Spreadsheet
Comp Prev. Mnthly Inflation,Classic 60/40,Golden Butterfly,All Seasons,Income,Bogleheads 80/20,Qian,Leveraged Butterfly,100% Equities,Growth,Leveraged Seasons2/3/2022,0.58%,-4.69%,-3.38%,-3.51%,-4.91%,-4.67%,-5.61%,-5.30%,-5.32%,-8.60%,-8.10%Month’s Rank,4,1,2,5,3,8,6,7,10,9Month Start Value,...

There is no way to sugarcoat it - this month reveals the difficulty of trying to rely on accumulated assets for one’s living expenses. It was so bad that each of the portfolios finished January below its starting value of $1,000,000, suggesting that the 4% is not sustainable. It's just one month, but what makes it more poignant is that it is happening at the beginning of the testing period, before these portfolios have had a chance to grow.

Of the ten sample portfolios, all finished with losses between -3.4 and -8.6% after living expenses were withdrawn. Two conservative, RP-inspired portfolios did the “best” for the month, and the two aggressive, heavily leveraged RP-inspired portfolios did the worst. It was the type of month that definitely shows where leverage can go wrong, as the five portfolios with leverage finished as five of the bottom six.

We haven’t even mentioned inflation yet, which came in at 7% on an annualized basis, or .58% for just the month. That meant higher withdrawals for the month at the same time that most asset classes were tanking, producing a double whammy for the portfolios. Whether the market suffered so much because of inflation figures is an open question, but certainly, it didn’t help anything. As if to kick the investor while they are down, there were no dividends received this month in any of the portfolios. January is usually a break from dividends, as companies close out the previous year with payments in December, and offer their first dividends of the new year in early February. In a sense, these are the dividends for January, but I follow  stricter rule of only counting them in the month they arrive.

On the bright side, the one asset class to experience great returns for the month was commodities, in line with our expectations. The commodity fund PDBC was up 7.9% for the month, making it the only asset in any of the sample portfolios to experience a positive month. Meanwhile, equities got hammered. VTI, representing the total US stock market, was down -5.6%, small cap stocks (represented by VIOV) were down -3.7%, and international stocks (VXUS) down -2.1%. Fixed income did better, but still down. Short-term treasuries were down a little (-.8%), and long-term treasuries down a lot (-4%). Leveraged funds flirted with disaster, meanwhile. UPRO finished -14.7% and TNA, the 3X leveraged small cap fund at -25.8%.

Monthly Results:

February 2022 Monthly Results

Cumulative Results:

February 2022 Cumulative Results

Notable Asset Performance:

February 2022 Assets