Since 2008, 2022 has been a poor year for investors, with the S&P 500 losing 20% and the Nasdaq Composite ending 2022 with a 33% decline. The question on everyone’s mind is, will the stock market weather this storm? However, investors should tune their minds differently. Let us see.
Change your Investment Mindset
Predicting the future is impossible for any human being, and predicting when the market will rise again is a near-impossible task. The number of changing variables in the stock market makes this endeavor harder, especially given investor sentiment. But how do we make such decisions without data from the future?
It is all about the time perspective of the investor. Long-term investors who measure years in decades will hardly feel the pinch of 2022. But on the other hand, investors are likely to feel the salt in the wound are late in their active years and nearing retirement.
As a long-term investor, it is good to use cost-cost averaging, an investment strategy where investors divide the amount to be invested into equal amounts and invests those equal amounts at regular intervals. The investor does this regardless of the price of the investment.
The goal of dollar-cost averaging is to reduce volatility’s impact on an asset’s overall purchase by buying at regular intervals rather than trying to time the market. This strategy can reduce the risk of investing a large sum of money at one time, especially if the investment price fluctuates significantly. Of course, dollar-cost averaging does not guarantee a profit or protect against loss. However, it may help to smooth out the overall impact of market volatility on an investment portfolio.
Do not Think About the Actions of the FED
The Federal Reserve has been responsible for most woes among investors in the previous year. The FED’s decision to raise the rates was a key factor in the economic downturn. Since 2008, the FED has deployed measures like these to contain runaway inflation. This trend has remained static since the COVID-19 pandemic.
There is no way of telling what the FED will do next, especially with the current conditions. The FED chair Jerome Powell believes that the economy will always change. As an investor, it would help if you focused on something other than government changes to rates because they can throw you off your path.
Investors must research and carefully consider their investment options before making any decisions. Past performance does not indicate future results, and investments carry inherent risks. An investment must achieve its goals, generate profits, or avoid losses. Further, investors should consult a financial professional before making investment decisions.