At the end of the year, it can be good to review the things I learnt from it. Following on from this, I can take the investing lessons and use them to my advantage in 2022. Even though it’s a new year, the themes running through the markets carry over from December to January easily. With that in mind, here are my top four stock tips for next year, based on my lessons from this year.
Understanding the impact of data
My first stock tip is to pay more attention to economic data releases. This year has highlighted the importance of data such as inflation, unemployment and property price levels. These releases have impacted individual stocks a lot, along with the broader FTSE 100 index.
For example, inflation has risen from 0.7% in March to 5.1% in November. This steep increase means that inflation is running at the highest level in over a decade. This has put pressure on stocks, particularly in the second half of this year. Higher inflation increases the likelihood of higher interest rates.
I think this will be key in 2022 as well, so I need to watch and pay attention to when the figures are due for release.
This ties in with my second stock tip, which involves keeping up to date with the monetary policy decisions from the major central banks. I don’t need to go and get a degree in economics, but I do need to understand some key relationships. For example, understanding why inflation would make a central bank more likely to raise interest rates. Or to understand why high interest rates are generally negative for the stock market.
If I’m aware of what the policy actions will mean for my stock portfolio, I’m in a better position to act before decisions get made in 2022.
Investing tips when putting £1,000 to work
My third stock tip is to ensure I diversify my £1,000. Over the past year, the best performing FTSE 100 stock has gained almost 80%. The worst performer has lost 30%. So there’s a huge mix in terms of performance over 2021. As much as I think I can pick one stock to beat the rest in 2022, it’s a much more sensible idea to spread my money over half a dozen stocks instead.
Based on the performance in 2021, there’s likely to be a large mix of stock returns next year.
My fourth stock tip would be to focus more on dividend stocks. Even with the small interest rate hike yesterday, interest rates remain very low. BY contrast, dividend yields in the FTSE 100 have moved higher (on average). So for 2022, I’d consider allocating more of the £1,000 than usual to top dividend stocks.
These can help me not only pick up valuable income during uncertain times, but also help me to offset the erosion that comes from low cash rates and high inflation pressures.
Overall, the above four stock tips can hopefully allow me to better navigate 2022. Having learnt the lessons from this year, I should be well placed to make next year a success!