RANDS AND SENSE
By Kapil Joshi
As we welcome 2022, there may be no better opportunity to look back at how the investment landscape has changed, consider where the biggest opportunities for the next 12 months will come from, and take note of which investment habits you need to shake.
A lot has happened over the last two years: cryptocurrencies have made game-changing moves, the world has embraced an entirely new way of life, and alternative investment vehicles have shown what they’re capable of.
Here are five important points to keep in mind as you figure out your investment resolutions for 2022.
1. Be aware of social media’s impact
The most unusual phenomenon in the investment market in the last year or so must be ‘meme stock trading’. The most notable case of this is when investors (spurred on by one particular Reddit thread) pushed US-based company GameStop’s stock price from $20 to $350 in just two weeks. This forced Wall Street traders, who were betting the stock would decline, to unexpectedly lose a lot of money. While the work-from-home environment made it easy for day traders to keep a close eye on stocks, it also led to a massive increase in emotional investing and trading. Knowing this, savvy investors will have to remind themselves not to get drawn in by the investment whims of the masses whenever a story breaks on social media.
2. Hedge funds are doing better than ever
The much-maligned hedge fund has shown its true value over the last two years. They are increasingly proving themselves to be exactly what investors need to diversify their portfolios and access wider return sources. Hedge funds offer investors a wide array of strategies that can help them to achieve their investment goals more effectively.
3. Employment will continue to be an issue around the world
Going into 2022, labour markets are still tight, with many open positions going unfilled. The phenomenon known as the “great resignation" of workers from the workforce has left many businesses with major skills gaps. In addition to this, strike and protest action has been on the rise, and may continue to grow in the coming year. This will have critical impacts on labour costs, supply bottlenecks, and inflation – which will certainly affect the stock markets.
4. Prepare for the unexpected
If the pandemic has taught us anything, it’s the importance of a personal emergency fund. If you haven’t already, now is the time to start. Ideally, you should have three to six months’ worth of living expenses in this fund, with the money kept in a low-risk, liquid account. As soon as you have this in place, you’ll be in the best position to avoid dipping into long-term investments to pay for short-term needs if you are ever in a financial pinch.
5. Boost your retirement savings
Covid-19 has caused many savvy investors to re-evaluate their ability to enjoy the retirement lifestyles they envision. In fact, many people who found that they were able to cut some of their living expenses during the lockdown have started funnelling more of their earnings into their retirement plans. This would be a good strategy for anyone, and the fact that most of us are saving more money by working from home, provides the perfect opportunity to put more money into our retirement vehicles.
Kapil Joshi is Head of Collective Investments at Momentum Investments.
This article first appeared in the January 2022 issue of IOL MONEY, our free digital magazine, which may be accessed here.