It’s that time of year when you will hear the “experts” give a few insights for what happened in the markets during 2021 and what they expect for 2022.
Inflation up, down or stabilizing. The stock market continuing a march up, collapsing or going flat. Precious metals may or may not be a safe-haven. Oil and other commodities might go up, down or stay flat…
You get the idea here. Lots of talk but does anyone really know with any accuracy what could happen in the next 12 months?
All these predictions have the same probability of being wrong or being right. With unprecedented variables at play any 2022 prediction is at best a guess. More volatility can be expected from things like another new COVID variant, more climate change disasters (December wildfires in Colorado?), Russia’s Mr. Putin ready to do anything including start a world war to distract his people from real internal problems, and this crazy employment situation…
So, what is an investor to do?
Here are a few quick ideas to consider:
- Do Nothing – Doing nothing is probably not a strategy since inflation is on the rise and sitting on cash is a guaranteed loser.
- Diversification – You’ve heard this many times over the years but diversification is the best way to manage volatility in the markets. Some of your positions will lose but others should gain to hopefully balance things out. January is a good time to look at your portfolio and rebalance. Gains from this 2021 market may have knocked your portfolio weighting out of whack. Don’t be afraid to sell some winner and balance back into what were losers in 2021. The only rule I know that always works is, “Things change!”
- Steady Dividends – No matter your age, financial situation, or investment goals… Some of your portfolio needs to be in steady dividend payers. No matter which way the market goes these stocks will pay you to wait around. But be sure the dividend stocks you pick are solid. If they stop paying dividends, then sell. Fast. This happened in the past with some bank stocks in 2008 and a few power generation stocks in the past. You are in them for the dividends, if they stop paying it is a signal to get out.
- Always Hedge – Investors who just blindly buy in to positions without hedging in some way are like someone who owns a million dollar house but does not have fire insurance. Hedging can be as simple as following the diversification rule or even better using equity options as sort of a stock position insurance policy. For some strategies on how to do this see: https://www.optionseducation.org/
Everyone seems to have lost of ideas on what might happen in 2022. Listen but be careful about what you do. A good question to ask people making these predictions is, “What are you doing with your money ovetr the next three to twelve months?”
If you ask me this question, my four answers are shown above.