2022 was a challenging year for the average Stocks and Shares ISA investor. That’s because a lot of investments – including stocks, funds, and investment trusts – dropped in value.
My own ISA fell around 20%, which is disappointing. Here, I’ll reveal why and discuss what I’m going to do now.
Why my ISA tanked
I generally invest in growth assets within my ISA as I have a long-term investment horizon and a relatively high tolerance for risk. And these assets didn’t perform very well last year due to the fact that interest rates jumped.
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One area of my ISA that took a big hit was US technology stocks. I have significant exposure to the likes of Apple, Microsoft, Alphabet, and Amazon. And in 2022, these stocks all experienced big pullbacks (after years of strong gains) as interest rates climbed.
Another area that underperformed was my growth funds and investment trusts. I have exposure to a number of different growth-focused products in my ISA including Fundsmith Equity, Blue Whale Growth fund, Scottish Mortgage Investment Trust, and the Sanlam Global Artificial Intelligence fund. And all of these products delivered negative returns last year as growth stocks fell out of favour.
Many of my UK growth stocks also produced poor returns. For example, Gamma Communications, Softcat, and Keystone Law all fell 20% or more as the financial landscape changed and investors gravitated towards safer, blue-chip stocks.
So overall, my exposure to growth investments hurt me in 2022.
My next moves
So, what’s my plan now? Well, the first thing I’m going to do is stay rational and take a long-term view.
History shows that investing in high-quality growth companies tends to produce strong returns over the long run. However, it also shows that returns aren’t always linear. There can be plenty of turbulence along the way.
Amazon is a great example here. Over the years, it’s had many 20%+ pullbacks. Yet long-term investors have still made an absolute fortune from the stock. For example, had I invested $10,000 in Amazon 10 years ago, my investment would be worth over $65,000 today.
So, I’m not going to panic over the fact that my investment returns in 2022 were poor. I’m going to stick to my investment strategy.
I’m investing now
The second thing I’m going to do is put more money into the market in the near term to capitalise on the lower prices on offer.
By buying stocks and funds now, while prices are down, I can potentially position my portfolio for strong returns when sentiment towards high-quality growth stocks improves and share prices start climbing again.
This may not happen tomorrow. It may not even happen this year. But history shows it’s likely to happen at some stage.
Of course, growth stocks could fall further from here. So I won’t be going ‘all-in’ immediately. Instead, I’ll drip-feed some money into the market every month.
This should help me average out my entry points and set me up for good returns over the long term.
