What are the best ways to invest your money in 2022?
2021 was another great year for investors, as the stock market ignored concerns about Covid-19 variants and the resurgence of inflation to soar for the third year in a row.
But not all asset classes have performed well. The price of gold has fallen, bonds have struggled and liquidity remains a no-go area.
So what can we expect in 2022? Not surprisingly, there is a lot that can be done to make investors nervous.
The Omicron variant is spreading like wildfire, although it so far seems softer than Delta, while inflation soared to a staggering 6.8% in the United States in November. There are also geopolitical concerns.
There is another concern. Stocks, property, and cryptocurrency float on a sea of fiscal and monetary stimulus, but 2022 looks like the year in which central bankers and politicians cut back. Are we finally facing the end of the great bull run?
In 2019, global stocks rose 28.4%, according to the MSCI World Index.
Last year, they ignored Covid-19 lockdowns to increase by 16.5%. They did so again in 2021, with MSCI World having grown another 17.3% so far. In the US, the S&P 500 is up 30% at the time of writing.
Obviously, this cannot go on forever. So, is 2022 the year where everything ends?
In the United States, all major sectors grew in the past year, including technology, industrials, materials, energy, healthcare, utilities, finance and real estate, according to Matt. Weller, Global Head of Research at City Index.
Historically, this suggests that we are in a mid to late bull market cycle. “If defensive sectors like utilities, consumer staples and healthcare start to outperform, it could finally signal that the bear market could be around the corner,” he said.
US tech companies in Megacap were the top performers again, with Alphabet, owner of Google, up 67% and Microsoft (up 55%), Apple (36 percent) and Tesla (27 percent) achieving all impressive performance.
Markets expect the US Federal Reserve to hike interest rates three or four times in 2022, which could hit “overvalued technology stocks,” said Fawad Razaqzada, market analyst at Think Markets.
“The Fed’s policy tightening will reduce the appeal of low-yielding growth stocks, especially those with overvalued valuations. Sentiment hasn’t been helped by insider selling lately.
Rising interest rates will increase debt service costs and reduce corporate profit margins, said Laith Khalaf, head of investment analysis at AJ Bell.
“The United States now accounts for two-thirds of the world’s market capitalization, much of it concentrated in a small number of tech stocks. If big tech sneezes, the rest of the world is going to catch a really bad cold, ”Khalaf said.
The travel, retail and hospitality sectors have been hit hard by the Omicron lockdowns but have yet to delist the shares, Khalaf said.
“The stock market seems to be the best game in town when it comes to generating long-term returns above inflation.
“As always, investors need to get out of the noise in the short term and keep an eye on the long term, investing regularly to mitigate volatility,” he said.
Two markets could outperform, according to Richard Whitehall, head of portfolio management at Aegon. “The UK and Japan offer relatively less demanding valuations and are well positioned to participate in the economic recovery.”
Outlook: The bull market has to end at some point and 2022 could be the year. Still, there is still no better place to invest your money and any drop could be a buying opportunity for long-term investors.
Many investors have abandoned bonds, amid negative real yields and fears of a bond crash.
Bonds were traditionally meant to offer low risk income and capital, but some argue that they have instead become a “high risk, no return” investment.
They pay a fixed interest rate and it will look less and less attractive if inflation rises, Khalaf says.
“A tightening of monetary policy is underway, barring a significant resurgence of the pandemic, and this could come as a shock to the bond market, which has become accustomed to ultra-accommodative monetary policy. “
In addition to raising interest rates, central banks could start cutting back their massive bond buying programs, affecting demand.
“Unless we believe monetary policy will never normalize and quantitative easing is here forever, there must come a judgment day for the bond market. It could be gradual deflation rather than an explosive rupture, but it sounds like a question of when, not if, ”Khalaf said.
Outlook: Analysts have been warning of a bond crash for years, but it has yet to happen. The more inflation rises, the greater the danger.
The average cash account has fallen in real terms by 2.37% per year after inflation over the past decade, eroding the value of an investment from £ 10,000 ($ 13,514) to £ 8,711, according to Brewin Dolphin.
Most people still think money in the bank is safe, but inflation is a “silent killer,” according to investment manager Rob Burgeman.
A lot of people don’t realize this, and banks don’t have to issue warnings like they are with stocks.
“A more accurate bank statement would show the impact of inflation on your money and include warnings that cash savings may lose value over time,” said Burgeman.
Interest rates will rise in 2022 but inflation will rise faster, Khalaf said. “So cash always seems to be an awkward place for the foreseeable future. “
Outlook: Everyone needs a little extra cash for instant access in an emergency, but you should never leave cash in the long run. The outlook has gone from bad to worse.
There was no Santa rally for Bitcoin at the end of 2021 with around $ 46,000. It’s still an increase of over 50%, but it has been declining in recent times and this year could be more difficult, said Vijay Valecha, chief investment officer at Century Financial. “Investors have pulled out of the more speculative asset classes, fearing that a ebb in central bank stimulus and a new variant of Covid-19 could cause problems.”
Bitcoin will need to break through the $ 50,000 mark for the bulls to gain the upper hand, he says. As always, anything could happen.
For those happy to take a kick out, cryptocurrency trader Nick Ranga at AskTraders.com advises Ethereum, which he calls “the only other digital asset besides Bitcoin worthy of being labeled as a crypto. prime currency “.
“It is the world’s most widely used blockchain and the default network for emerging non-fungible tokens, or NFTs,” he adds.
Ethereum can currently execute 30 transactions per second, but this year’s upgrade could increase that number to 100,000 per second, giving it new momentum.
Ripple’s BinanceCoin, Polkadot, Solana, Cardano and XRP are also worth watching in 2022, Mr. Ranga said.
Outlook: Cryptocurrencies will remain as volatile as ever in 2022, but it’s hard to shake the feeling that the jackpot has already been won.
Gold was perhaps the only major asset class to lose value last year, down around 5% to $ 1,800 an ounce at the time of writing.
The precious metal does not earn interest, which means it could struggle if rates rise this year and make alternative safe havens such as cash and bonds relatively more attractive.
“Money markets are now anticipating a 50 percent possibility of an interest rate hike at the US Federal Reserve’s March meeting, which limits the metal’s rise,” Mr. Valecha said.
Although gold underperformed in 2021, it hit an all-time high of $ 2,084 in August 2020, said David Jones, chief market strategist at Capital.com. “Still, those glory days are feeling good behind them right now.”
Some gold fans believe gold is expected a good year after recent struggles, Jones said. “It could do well if the economic bubble finally bursts.”
Outlook: Every investor should have some exposure to gold, but now is not the time to rush into the precious metal as inflation soars. Many also argue that Bitcoin is replacing it as a store of value. Time will tell us.
Many analysts expect China to have a tough year as growth slows, the government tightens oversight of the tech sector, and the Evergrande meltdown threatens its real estate market, but the manager of Aegon’s portfolio, Richard Whitehall, is more optimistic.
“Stock prices may have overreacted to China’s economic and political woes, and the government can act to stabilize the economy and counter any pressure on growth. The current decline in valuations may well present opportunities over the next 12 months, ”he said.
Outlook: China is facing a turbulent year, but it may be worth buying if it lows.
Updated: January 3, 2022 5:00 a.m.