Now that the Covid-19 pandemic seems to be releasing its grip on the world, 2022 has provided a welcome relief from infection rate charts and safety slogans. It hasn’t all been plain sailing though. Instead, the biggest news stories this year have been mostly financial.
As the months went by, inflation continued to rise, markets became more unpredictable, and investors became more nervous. But despite this, you may have noticed that the year provided some important lessons in investing.
Here are the three most important financial lessons we learnt from the events of 2022.
1. Trends come and go, but they’re rarely helpful when investing
The world is more interconnected now than it has ever been. With the world literally at our fingertips, it’s easy to get caught up in whatever scandal or trend is currently doing the rounds on social media or in the news headlines.
The thing is, those trends aren’t usually very helpful when it comes to making investment decisions. While they may seem very important in the moment, chances are the majority of the big stories or outrages that you read about in 2022 won’t be very important in a few years’ time. In fact, some of them may have completely fizzled out by the end of the year.
That’s why it’s important not to make rash decisions about your investment portfolio based on short-term concerns or big news headlines. This is a lesson that will apply just as much to 2023 as it does to every other year, so keep it in mind whenever you feel the urge to tweak your strategy based on something you’ve read about in the news.
2. If it sounds too good to be true, it probably is
This is somewhat related to the first lesson about trends. The fact that even though something new seems to be catching on and gaining momentum, it still requires careful thought and consideration before you jump onto the bandwagon.
Cryptocurrency, or digital money, is one example. The idea of decentralised finance started off life in a very niche technology community, but in recent years has begun to garner more and more attention. Venture capital investment kickstarted wider interest from retail investors, who further inflated the perceived value of the asset.
Sadly, there has been little in the way of regulation in this area, and early investors haven’t seen the growth that was anticipated at the start of the year. In fact, Forbes Advisor reports that bitcoin, one type of cryptocurrency, has dropped by 65% in value over the course of 2022.
A harsh reality check for the early investors, the so-called “crypto winter” has shown us that anything that seems too good to be true – such as new asset classes that promise quick riches – probably is. Instead, focusing on the things that have always worked is much more likely to pay off in the long run, even if it takes a little longer than you want it to. Read more about this in our article.
3. Learn how to weather the storm rather than run from it
There’s been plenty of stormy weather on the stock markets over the past year, and a lot of it has had investors biting their nails and looking for the exit.
It’s tempting to sell off your most risky stocks when you notice their value plummeting but, as you probably already know, this is rarely the right choice.
The bear market in 2020 that was caused by the start of the Covid-19 pandemic was dramatic but incredibly short-lived. Within around four weeks the losses began to turn around. So, anyone who had sold their assets and moved their wealth into cash for “safekeeping” at the start of the downturn would have missed a very swift rebound.
Even though the bear market in 2022 is lasting much longer than it did in March 2020, history tells us that markets tend to recover the losses made during bear markets within five years. So, while it’s tempting to head south for the winter, you might be better off putting on a few more layers and waiting out the storm.
Get in touch
If you’d like to learn more about how to weather the storm and create long-term financial wellbeing for your family, we can help. Either contact your financial planner directly, email us at hello@ascentawealth.com or fill in our online contact form to organise a meeting and we’ll get in touch.
