December 2022

By Forrest Private Wealth

At Forrest Private Wealth, our investment philosophy underpins our financial planning advice, which ensures our client’s wealth benefits from long-term exposure to equity markets. We believe holding a well-diversified portfolio of predominantly dividend-paying businesses over a long-term period is essential in financial planning for wealth accumulation and, ultimately, retirement planning.

By following our retirement planning process, a Forrest Private Wealth financial planner stays true to their investment advice, ignoring the noise and pressures of the market to provide their clients with a stress-free retirement. At Forrest Private Wealth, our financial planners capitalise on an investment philosophy that provides predictable income streams from equity markets, setting clients up for their desired retirement.

Long Term Portfolio

December capped what was an incredibly challenging 2022 for share and fixed income markets alike. In fact it was only the third time in 100 years that both equities and bonds posted down years – 1931 and 1969 being the other.

So what is 2023 likely to bring? Nobody can successfully predict what returns will be year to year. The benefit of history, however, suggests that the subsequent proceeding years can produce solid capital and income returns with each negative year. Inflation numbers curbing, central banks approaching peak tightening, China’s reopening from zero Covid, and an ever-slow but improving Geopolitical environment are some key themes that look more promising for the 12 months ahead than the last 12 months experienced.

And the winners? When it comes to investing and funding retirement – those who continue to hold the line, stick to their investment strategy, maintain investment exposure (and continue to collect the income), and do not put themselves in a position to draw down at unsavory times.

Short Term Portfolio

The twelve months to December 2022 was one of the toughest annual periods for bond market performance, or should we say, lack of, in several decades.

Widespread rising inflation in 2022 saw bond markets post one of their worst returns on record. Australian government bonds had their worst year since 1931, when the Commonwealth Government defaulted and restructured its entire stock of domestic debt in a Greek-style restructure. US bonds had their worst year since 1920, which was caused by the post-WW1 inflation spike.

2023, like all years will have its ups and downs, however as inflation starts to ease and central banks rate increases approach their peak or near peak, this year augers better than the last 12 months – with a return to positivity from the bond side of the portfolio highly anticipated.

Micro Cap Portfolio

Global equities sold off in December, capping a challenging year. Equity markets are still grappling with rapid rate hikes as central banks globally focus on combating widespread inflationary pressures during 2022.

2022 was a year most investors would rather forget. The S&P 500 shed 19.4 percent during 2022 while the tech-heavy NASDAQ tumbled 33.1 percent, marking their worst yearly performances since the 2008 financial crisis and ending a three-year winning streak. Rising yields impact the discount rate used to value securities, particularly ‘long-dated’ growth sectors such as technology and biotech. Falling liquidity also affects the ability of smaller companies (often unprofitable) to raise equity capital; consequently, they have dragged lower than their larger market peers.

2023 presents a mixed bag of opportunities and threats, with equity strategists sitting in one of two camps for the year ahead:

–          Recession, or

–          Soft landing.

It will take some time before it becomes clear which scenario is correct, and we expect there to be similar volatility to what we have seen recently until the path is clear.

Considering the macro uncertainty and equity markets investors focus on macro themes, continuing to invest in managers who have a bias toward companies with earnings resilience, strong balance sheets, and growth potential independent of the economic cycle will provide the best chance of navigating through the volatility and rebounding quickly when the focus shifts back to company earnings. We continue to predominantly favour managers who invest with these attributes front of mind.

Forrest Private Wealth’s discipline in providing financial planning, retirement planning, and wealth management services to its clients allows our clients to benefit from years of experience providing financial advice through major impacts to equity markets where staying the course has helped them.

Forrest Private Wealth has a dedicated team of financial planners and support staff providing clients with peace of mind in working towards and achieving their life goals.


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