Here we are a month into 2022, and we are seeing some heightened market volatility. I agree, seeing items drop by 10% can be stressful. How does that affect me? Can this keep going? Most of us do not want to repeat some of those big drops.
However, a few things can help us stay on track.
First, this article helps to better understand the positioning and what it means.
While this is nerve wracking, it's good to remember the focus of investing.
1) This is usual. Most years the market drops 10% at least once per year. But that is not usually where it finishes. A re-pricing is okay, as long we are able to take advantage of that with some re-balancing.
2) This has been anticipated. The problem is we never know exactly when it occurs, and for how long, but while we are not immune, portfolio managers have been positioning to manage through this, and many have increased cash to be able to find the opportunity this brings. Is Microsoft going to be less profitable next year? I think not. This is simply a good buying opportunity for some socks and a little bit of re-pricing in the market.
3) It's always important to ensure we are considering both your short-term and long-term priorities. That will mean different investment priorities, and different cash needs must be considered.
4) When inflation occurs, we need to be invested in what can keep up. Real estate, commodities, equities all apply, but with changes in the market and interest rates, there is also more volatility. Therefore, ensuring you have market leaders and are willing to weather some extra volatility is important. History has shown us that over time, those traits generally keep up with inflation. Cash does not.
The following link is another anticipating what's expected in 2022.
If your situation has changed, or you simply want to review things, please reach out.
On another note, I was reviewing last year's message, and it seems every January, we have increased volatility. Sometimes (such as in January 2021) it's huge gains, way out of proportion for some stocks, such as the Reddit interest on Blackberry, Gamestop and more last year. This year, it's the dramatic drop of all things technology causing some to state this is compared to the tech crash of 2000. While some stocks may have reached some lofty targets, most of them have earnings and solid business plans. So, we are not re-living the tech crash.
What we are seeing is that the pendulum swings the other way, and as always it tends to swing farther than it should. Be aware, and try to ensure we make logical decisions, instead of being swayed by every extreme opinion.