Investing was hot earlier in the Covid-19 pandemic – stock markets boomed, as did retail investing apps, meme stocks and cryptocurrency. Trading suddenly appeared fun and accessible, especially to young people.
But things are different now. High inflation and high interest rates, a looming recession, war in Ukraine and the global cost of living crisis are holding financial markets back.
And investing gets trickier because of it, said James McManus, chief investment officer at investment firm Nutmeg.
“So far, 2022 has proven to be a difficult year for investors, with bond and equity markets both experiencing volatility,” he told CNBC’s Make It, adding that some of those conditions will continue to weigh on the markets in the months to come.
What History Shows
But investing is still a good idea, Myron Jobson, senior personal finance analyst at the investing platform Interactive Investor, told CNBC’s Make It.
“History has shown that investing can outperform saving cash over the long term,” he said.
“Some people may be waiting for a better time to invest in the market, but the truth is, no one knows when that will happen and chances are you won’t know when that time will come,” Jobson added. .
For many young investors, this may be the first time their portfolio has consistently recorded losses. That may sound ominous, but it’s actually part of a normal cycle, Jason Hollands, a personal finance expert at investment management and planning firm Best Invest, told CNBC’s Make It.
“Stock markets will periodically experience losing streaks […] and every investor will experience it from time to time,” he said.
Think long term
That’s why young investors should think long term, Jobson and Hollands said.
“Investing is long term. Set yourself clear goals, which should be at least three to five years in the future, only invest money you won’t need in the short term. term,” McManus said.
In fact, a lackluster market might even be a good thing, Hollands said.
“Long-term success as an investor comes down to buying high-quality companies when their stock prices are relatively low and selling them when they are high,” he added.
To protect your investments from market movements, it’s essential to ensure you invest in a range of asset types, Jobson said.
“One of the best ways to bolster your cash invested in stormy markets is to have a balanced global portfolio,” he said.
This could include investments in different regions, types of assets like stocks and bonds, and sectors – such a mix of technology, healthcare and transportation.
It’s also important to decide how much risk you want to take, McManus said.
“Risk is a natural part of investing, but it’s good to understand how it will feel to watch your money go down and up, and choose a portfolio that matches your risk appetite,” he said. declared.
Take a “step-by-step” approach
According to experts, there are also more specific strategies that could ease the stress of navigating difficult markets.
Pound sterling (or dollar, euro, etc.) – the average cost is one of them, according to Jobson.
“Nervous investors can pour monthly investments into food to help smooth out inevitable market shocks,” he said.
The approach is based on investing small amounts of money on a regular basis, whether the markets are bullish or bearish. Proponents of the strategy say it makes investors less emotionally invested and more disciplined, but critics argue that when markets are rising steadily, the approach means you get less investment value for your money.
Hollands, similarly, said investing gradually can ease concerns about the timing of investments.
“This gradual approach will help eliminate concerns about the right timing and mitigate some of the effects of price gyration,” he said. “You just keep going through the ups and downs and you won’t be knocked down in the long run by the news and market jitters,” he added.
McManus agreed that the approach can ease market volatility on your portfolio. But he also recommends another approach that goes back to the idea of keeping a diversified portfolio.
“Try to avoid FOMO,” he said, adding that while it can be boring, following trends can be risky.
“There can be a lot of hype surrounding individual stocks or particular sectors, and while you may want to hold some of these as part of a diversified portfolio, investing only in the latest trend is literally put all your eggs in one basket.”
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