In a new study from Bankrate, a group of top stock market players revealed that the investments or practices they recommend should be avoided to continue growing your wealth in 2022 and beyond. Experts pointed outcryptocurrencyas an area to watch, but also some bonds and even some growth stocks.
We asked respondents, "If there is one thing you would recommend that individual or retail investors avoid in the coming year, what would it be?" Their reactions varied.
Prognosis and analysis:
This article is one in a series discussing the results of Bankrate's Market Maven's fourth quarter survey:
- Top market strategists see shares rising by almost 8 percent in 2022
- Experts predict a sharp increase in government interest rates in the coming year
- A correction in the stock market is already over and probably imminent, say 70 percent of top analysts
- According to top market experts, there are six things individual investors should avoid in 2022
What the experts think investors should avoid in 2022
The survey's market watchers identified a number of things to avoid, including some of today's most popular investments.
1. Cryptocurrency
Cryptocurrencies likeBitcoinofEthereumseems to be as popular as any investment in recent history, but two of our respondents mentioned this as something to avoid altogether. Both Marilyn Cohen, CEO of Envision Capital Management, and Chuck Carlson, CFA, CEO of Horizon Investment Services, say this should not be on investors' shopping radar at all.
It is important for investors and traders to understand that most cryptocurrencies are not backed by the assets or cash flow of an underlying company. In this respect, it is in stark contrast to equity investing, where a company's long-term performance determines its returns.
But in cryptocurrency, the price is determined by bringing more speculators on board, or what is called the “big fool” theory of investing. There's a reason for thatInvesting legend Warren Buffett refuses to touch the stuffand warns you not to do so either.
Here's how stocks compare to cryptocurrency and what you need to know about each.
2. Long-term bonds
Clark A. Kendall, president and CEO of Kendall Capital Management, cautions investors against long-term bonds. Why long bonds and not all bonds?
Bond prices move inversely to interest rates. When interest rates rise, bond prices fall. When interest rates fall, bond prices rise. But this effect is even more pronounced for long bonds. The longer the bond, the more it is affected by changes in interest rates.
With the Federal Reserveis slowing down bond buying and about to raise rates in 2022Many market bonds expect a much less favorable environment for long-term bonds. Bonds pay historically low interest rates, so long-term bonds that fall in price can trap investors with a low-interest investment for years to come.
3. Growth stocks at any price
What investment should be avoided for Briefing.com Chief Market Analyst Patrick J. O'Hare? Will pay any price for growth stocks.
“That was the situation in 2021, but with interest rates about to rise in 2022, you have to try to buy growth at a reasonable price,” O'Hare says.
As interest rates rise,Many investors are switching to value stocks, and more expensive growth stocks tend to be penalized. Many formerly high-flying and fast-growing software as a service (SaaS) stocks have already fallen sharply from their recent highs in anticipation of this shift.
4. Emotional decision making
And whether you're buying or selling, several of Bankrate's experts surveyed pointed out the pitfalls of emotional investing.
The number one thing Michael K. Farr, CEO of Farr, Miller & Washington, should avoid is "making emotional short-term investment decisions." For Kenneth Chavis IV, CFP, senior asset manager at LourdMurray, it's “panic selling during periods of pandemic-related volatility.”
Any way you look at it, emotional decision making will ensure you sell a winning long-term investment, because youafraid it will fall this year. You're so worried about losing money that you miss the long-term opportunities.
Sam Stovall, Chief Investment Strategist at CFRA Research, also points out the pitfall of emotion-driven investment decisions, then points out that 2022 could be particularly volatile.
“The second year of the presidential cycle is the most volatile of all four (40 percent above the average of the other three), with the standard deviations in the second and third quarters being 33 percent and 80 percent above the average of the other fourteen quarters ” said Stovall. say.
Joseph Kalish, chief global macro strategist at Ned Davis Research, seems to agree, advising that "markets need to be more volatile and create more opportunities."
Use that volatility to your advantage and avoid emotional decisions.
5. Technology stocks
Given the strong rise of technology stocks over the past decade, tech may not be the most obvious candidate to pay attention to. But many companies have, for the first time, started taking advantage of investors' indiscriminate demand for tech stocks, without yet being able to deliver the goods.
“Never fall in love with technology,” says Kim Forrest, chief investment officer/founder of Bokeh Capital Partners. “Look at the economic incentives that drive adoption of a technology.”
Electric car sharing is a good example of this. Many companies want to withdraw from the enthusiasm this has sparkedTeslainto the stratosphere despite a less developed company or in some cases a company that has not yet delivered any meaningful profits.
With interest rates set to rise in 2022, "growth" tech stocks may not be as popular as they usually are, butthe right ones could still perform well, especially in the long term.
6. Emerging markets equities
You also need to be careful with emerging market stocks, says Dec Mullarkey, managing director of SLC Management. These markets often have less robust governance and financial guarantees.
Mullarkey expects some of these markets to prove problematic for investors.
“Large segments of emerging markets will experience high inflation and normalizing activity,” he says. “Latin America in particular will continue to have uncertain political backgrounds in many of its major economies.”
Those looking to invest in emerging markets may want to choose their locations carefully to avoid a disruptive political or economic situation.
Methodical
Bankrate's Q4 2021 survey of stock market professionals was conducted 1-9. December via an online poll. Survey requests were sent via email to potential respondents across the country, and responses were voluntarily submitted through a website. Commenters included: Clark A. Kendall, president and CEO of Kendall Capital Management; Dec Mullarkey, Managing Director, SLC Management; Patrick J. O'Hare, chief market analyst of Briefing.com; Joseph Kalish, chief global macro strategist, Ned Davis Research; Sam Stovall, investment strategist, CFRA Research; Marilyn Cohen, CEO of Envision Capital Management; Chuck Carlson, CFA, CEO, Horizon Investment Services; Kim Forrest, Chief Investment Officer/Founder, Bokeh Capital Partners; Michael K. Farr, CEO, Farr, Miller & Washington; Kenneth Chavis IV, CFP, senior investment manager, LourdMurray.
Editorial Disclaimer: All investors are advised to conduct their own independent research into investment strategies before making any investment decision. In addition, investors are advised that the past performance of investment products does not guarantee future price increases.
