How To Navigate The Stock Market In 2022

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As inflation concerns rise, geopolitical tensions intensify and with several interest rate hikes coming this year, economic and stock market conditions are uncertain. Over the first few months of 2022, the general market has declined nearly 15% from all-time highs set back in Dec. 2021. Stock prices are currently in a sideways, choppy environment. To help navigate this confusing market, here are my top 3 things to consider for the remainder of this year:

  • Stay Diversified, No Matter What

  1. Amidst a bumpy market, stock prices will undoubtedly fall, which may seem like an opportune time to buy at a discount. While it may seem enticing, I encourage each investor to remain diversified as much as possible. Do not put all your eggs in one basket. Avoid focusing on one particular stock or sector of the market. Utilize index funds versus buying individual stocks. Focusing on the potential upside of buying a declining stock often leads to overlooking the downside risks. Staying diversified can feel monotonous, but in exchange, you reduce the possibility of frustrating portfolio swings.

  • Take Advantage of Dollar-Cost Averaging

  1. If you have readily investible assets, mainly cash sitting in the bank, I suggest investing smaller amounts over a longer period versus investing it all at once. Dollar-Cost Averaging focuses on investing equal amounts consistently, regardless of price. This helps mitigate market volatility because you are buying stocks/funds at lower prices. This also reduces the emotional toll because you are investing in smaller increments. This applies to your retirement plan at work, such as a 401k, as well. If your budget has flexibility, this may be a good time to increase your contributions to utilize cheaper stock prices.

  • Focus On The Long-Term

  1. If you are a long-term investor (i.e. not retiring within the next few years), short-term market dips should not be of concern. Market fluctuations are common over an extended timeline. Although there will be several key economic hurdles in the months ahead (inflation, interest rates, etc.), the stock market has a proven history of rising in the long run. On the other hand, for investors who are retiring in the next few years, it may be time to tweak your portfolio by dialing back your overall aggressiveness. If your portfolio allocation already accurately reflects your risk tolerance, financial situation and time horizon, then you should be properly invested to begin with and can carry forward as-is.

I hope you enjoyed reading!

Joshua J. Baird
Investment Adviser Representative