Between rising COVID-19 cases, inflation, labor shortages, supply-chain issues, and outlooks from the VIX index, we can confidently assume that many investors are entering 2022 with uncertainty over how the market will perform. Therefore, investors are likely to make opposing decisions based on mixed assumptions about the market. The market reflects the decisions of investors and, therefore, will likely experience highs and lows throughout 2022. To help you navigate stock market volatility, we listed a few beneficial practices for preventing losses in an unpredictable economy.
Look at the VIX index:
The VIX index is a measure of the S&P 500’s predicted volatility. According to Watts (2021), the VIX is likely to remain above average in volatility as it recovers from its immense spike in 2020. Usually, when the VIX experiences a massive spike, it doesn’t fully recover for years. Therefore, 2022 is expected to be a year similar to 2021, a year with above-average volatility as the market continues to recover from the pandemic (para 4). Throughout 2022, investors should regularly check the VIX in an effort to determine near-term market volatility.
Be on the lookout for low stock prices:
Periods of economic downfall provide opportunities to buy high-quality stocks at low prices. The stock market crash in 2020 didn’t last long since many investors saw opportunities for growth. According to Graffeo (2021), stocks as large as Tesla tanked below $90 in March. This low price caused many investors to buy. By the end of 2020, the stock price soared above $700, and investors saw a huge return on investment (para 1). Although a market as volatile as what occurred in 2020 is rare, there are still significant opportunities in the somewhat volatile market that we expect in 2022. Therefore, keep an eye out for stock market lows to consider expanding your investment pool at a fraction of the cost.
Diversify your investments:
To minimize your risk during a volatile market, investing in multiple sectors is essential. Even though most stocks don’t perform well during periods of high inflation, there are a select few that do. Having a combination of stocks that perform differently in different economic environments is a strategic method to avoid a net loss in the stock market.
Hire a financial professional:
Predicting the market during a pandemic and an economy dealing with inflation, labor shortages, and supply-chain issues is no easy task. If managing your stocks on your own is becoming too overwhelming, our financial advisors at U-Vest® are happy to assist you. We take inflation and economic outlooks into account with every investment decision. Contact us today for expert financial advice and management.
Sources:
Watts, W. (2021, December 23). Don't expect stock market volatility to subside in 2022. MarketWatch. Retrieved January 3, 2022
Graffeo, E. (n.d.). Tesla's stock price surged 740% in 2020. here's where 5 analysts say the shares are headed next. Business Insider. Retrieved January 5, 2022
This article is meant to be general in nature and is not intended, and should not be construed as personal advice of any kind. Please consult your financial advisor prior to making financial decisions. Michael P. Davino, CFP® is a Financial Advisor with U-Vest Financial®, a separate entity from LPL Financial and can be reached at 850.300.7055. Securities and advisory services are offered through LPL Financial, a registered investment advisor, Member FINRA/ SIPC.
(1/22)