Considering all the headwinds faced, I imagine most investors will put 2021 down as a pretty good year for their portfolios. Even after Friday’s wobble, the FTSE 100 and FTSE 250 are still well above where they stood in January. Yes, there have been a few inevitable ups and downs, but nothing to compare to the market crash witnessed in the previous year.
But what about 2022? Like a lot of things right now, crystal balls are currently out of stock so one can only speculate. However, this is not a fruitless exercise. At the very least, it reminds me to hope for the best, but prepare for the worst.Â
Is a market crash on the way?
There’s no shortage of reasons for thinking that 2022 might be less lucrative for investors. Or even an unmitigated disaster.
Soaring Covid-19 infection levels in Europe don’t exactly bode well. Nor does the emergence of a new African variant. Boris Johnson believes that the UK should escape another national lockdown, but who can really say at this point?
The pandemic isn’t the only thing that could hold equities back. Another is the not-so-transitory inflation we’re seeing. This may lead central banks to raise interest rates. Although arguably long overdue, it’s unlikely the market will celebrate this move. A lot will depend on the frequency and magnitude of these hikes.
Current valuations are worth pondering too. Across the pond, the S&P 500 continues to set new highs with such frequency that it barely causes a ripple in the media. To complicate matters, this momentum is largely down to just a handful of tech stocks that could be subject to increased regulation going forward.
Last, but not least, there’s an awful lot of speculation going on. The emergence of non-fungible tokens (NFTs) is just one example.Â
So what am I doing about it?
Well, let me tell you what I’m not doing first. I’m not worrying. Or, to be more precise, I keep reminding myself of just how futile worrying about a stock market crash is. I can’t control what happens out there. I can only control my own behaviour.
So, here’s what I’m doing:
- Continuing to drip-feed money into funds and shares where the valuations aren’t absurd and the investment case remains intact.
- Gradually accumulating some dry powder on the chance 2022 turns out to be a shocker (and, consequently, a great opportunity to buy shares).
- Monitoring a watchlist of great businesses that are just a little too expensive for my liking. This FTSE 100 stock is a great example.
- Checking my portfolio less. If I trust the businesses I own, what’s the point of excessively monitoring them? Indeed, the prospect of a market crash is helpful in testing how much conviction I truly have.Â
- Reminding myself to watch less news and read more history. The latter will show that crashes/corrections are far more common than many investors believe. And, so far at least, things have always recovered.             Â
Look beyond 2022
By now, you’ll have gathered that my investment strategy is Foolish to the max. It’s about focusing on the long term. It’s about ignoring the panic and gnashing of teeth. It’s about accepting that market capitulations are inevitable and, yes, healthy.
2022 might end up being great for investors like me. If not, at least I have a plan…