Will investors have to endure a real stock market crash in 2022?
SSo far, 2022 has been quite a difficult year for investors. In January, stocks flirted with corrective territory and hit lows we haven’t seen since March 2020.
February, meanwhile, has been a volatile month so far. And at this point, many investors are worried about what the stock market has in store for them.
To be clear, however, 2022 hasn’t produced a full-fledged stock market crash — at least not so far. But is this something investors should prepare for?
Will stock values fall in 2022?
One of the hardest parts of being an investor is coping with the unpredictable nature of the stock market. When the omicron surge erupted in December, many investors assumed that stock values would plummet. But that didn’t happen. Instead, stock values began to fall, just as omicron numbers began to improve.
Because stock market crashes can be unpredictable, we cannot say for sure whether or not we are headed for an intense and prolonged downturn in 2022. But one thing we can say is that it is always a good idea to be prepared for this possibility.
Preparing for a stock market crash
Whether stocks crash completely later in 2022 or sometime in the future, every investor should take a few basic steps to prepare. First, secure your emergency fund. Make sure you have enough money in the bank to cover at least three months of living expenses so that if cash is needed, you don’t have to liquidate investments when they run out and to permanently lock in losses.
Next, make sure your assets are distributed appropriately, given your age. If you’re decades away from retirement, don’t hesitate to bet big on stocks. If the market crashes, your portfolio has many years to recover. But if you’re nearing retirement, consider investing more conservatively. This could mean limiting your stock holdings to around 50% of your total assets.
Finally, make sure your portfolio is diversified. If you load too many stocks within a given segment that takes a noticeable hit during a market downturn, your portfolio could end up taking a very big hit.
You can diversify by making sure you own a few dozen stocks across a range of market segments. Or to make the process even easier, stock up on exchange-traded funds on a broad market (AND F). The advantage here is that you can do minimal research, while preparing to own many stocks with just one investment.
We don’t know what the rest of 2022 holds for the stock market. Portfolio values could rise across the board or plunge before the end of the year.
In light of this unpredictability, the best thing you can do as an investor is to be constantly prepared – and remember that while stock market crashes can be life-changing and stressful, they can also be short-lived. So even if things do take a noticeable turn for the worse this year, it doesn’t mean your long-term financial goals are doomed.
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