The stock market has been on a few roller-coaster rides over the past few years. The Covid crash in March 2020 led to the FTSE 100 sinking by over 33% amid mass uncertainty surrounding the impact of the crisis at the time. It eventually recovered to its pre-pandemic levels, albeit almost two years later.
But here in 2022, we’re experiencing another stock market wobble. Although, anyone looking juar at the UK’s most prominent stock index might be wondering what wobble I’m referring to.
It’s almost flat year-to-date and 6% higher over the past year. Supported by its multiple energy companies and defensive shares, this index has held up relatively well. Most stock indexes have not been so fortunate, however.
For instance, the U.S. Nasdaq Composite is down by 20% over the past year. Its technology-heavy shares fell much further, faced with rising interest rates and a more aggressive stance from the US central bank.
Stock market opportunity?
But after such heavy declines, is it an opportunity to buy shares at much cheaper prices?
Some studies conclude that stock market corrections of 20% or more occur about once every six years, on average.
But history also shows they tend to recover and move higher over time. That’s why as a long-term investor, I think it might be worth making some purchases for my portfolio now.
I need to keep in mind that share prices could fall even further in the near term. In an attempt to tackle surging inflation, central banks around the world are raising interest rates, and some are doing so aggressively.
At the same time, economic growth is slowing. This combination tends not to be positive for stock prices, in general.
Investing regularly
That said, trying to time when the stock market might stop falling is notoriously difficult. Instead, I’d rather stick to a solid long-term plan and make regular share purchases.
If I plan to make share purchases every month, I will automatically buy shares during stock market corrections. It’s called pound cost averaging and it’s an investment strategy that could work well for my Stocks and Shares ISA.
What to invest in?
I could opt for a low-cost FTSE 100 or S&P 500 index tracker. Or I could look for a managed fund that might be able to beat index returns. Alternatively, I could do some homework and find some quality shares to invest in.
I prefer a combination of all three. When picking stocks there are many factors to consider. But if I make good choices, they can potentially offer much greater returns. At the same time, they can be more volatile than stock indexes.
I’d prefer to diversify and own shares from several sectors. That way if something goes wrong in one industry, it might limit my risk.
I’d also prefer to only own high-quality companies that offer reasonable growth prospects. If my timeframe is over 25 years, I think I can afford to take a tad more risk in return for greater rewards.
So will 2022 be the best year to invest in the stock market? Quite possibly. But instead of trying to time the market, maybe I should stick to the plan and try to spend more time in the market.