If you’re an investor, it’s always useful to look back — and look ahead.
How did you do in 2021 and what can you anticipate in 2022?
First, let’s quickly review what happened in 2021.
Despite the ongoing pandemic, domestic political unrest, supply chain logjams and the return of inflation, the financial markets turned in some strong results: The S&P 500 gained almost 27 percent for the year, the Dow Jones Industrial Average returned nearly 19 percent and the Nasdaq Composite gained more than 21 percent.
And while your own returns may not have matched these figures — since you probably own a mix of investments, some of which are not tracked by these indexes — you still probably did pretty well.
But now that we’ve turned the calendar to 2022, what can you expect from the investment world?
Of course, it’s always somewhat risky to make predictions of this nature — and if our experience with the COVID-19 pandemic has taught us anything, it’s to be humble about projecting the future.
Nonetheless, we can look at some possibilities.
First of all, don’t be surprised to see some market volatility.
In 2021, we saw real gross domestic product growth of nearly 6 percent, largely fueled by two factors: an increase in consumer spending as the economy reopened following an easing of the pandemic, and the Federal Reserve’s continued monetary stimulus.
But in 2022, the combination of higher inflation — at least during the first half of the year — higher interest rates — the Fed has indicated it may raise rates more than once — and the continued uncertainty around COVID-19 may result in a “correction,” which is generally defined as a drop of 10 percent or more from a recent peak in the financial markets, as measured by a major index such as the S&P 500.
Corrections are not at all unusual — in fact, it’s more unusual to go through a year without a correction.
But the average market correction is short-lived, typically lasting just a few months.
And a market correction, when prices are down, may actually present an opportunity to purchase quality investments to add to your portfolio or to help diversify it further.
Other developments may also suggest a relatively favorable investment environment this year. For one thing, inflation may well subside somewhat in the second half of the year, as we should see a clearing of some supply chain bottlenecks.
Plus, household savings are strong, as is consumer spending, while wage growth is above average.
Taken together, these factors may help boost the economy in the latter part of 2022. Furthermore, even if the Fed bumps up interest rates, they’ll still be relatively low by historical standards and shouldn’t overly hinder businesses who need to borrow to expand their operations.
In any single year, pandemic or not, external events will affect the financial markets.
And while you shouldn’t ignore these events, you also don’t want to let them dictate all, or even most, of your financial moves.
You’re much better off focusing on things you can control — and the best way to do that is to stick with an investment strategy based on your goals, risk tolerance and time horizon.
By doing so, you’ll give yourself the best chance of success in 2022 — and beyond.
Edward Jones Investments
933 Park Avenue
Roanoke Rapids, NC 27870