This year has been a rough one for the stock markets.
In 2022 stock market volatility, which is measured by looking at how often stocks move more than 1%, either way, within a day, happened 90% of the time!
The last time the market was this volatile was in 2008 — during the Great Recession and global financial crisis.
What causes this volatility? And most importantly, what can you do about it?
Let’s unpack.
What’s been happening to the stock markets lately?
As expected, 2022 has been quite a tumultuous year for the stock market, to say the least.
As LPL Financial Portfolio Strategist George Smith puts it:
“The stock markets this year have felt like a rollercoaster, so it’s no surprise that the data shows it has been one of the toughest and most volatile on record.”
According to Smith, the S&P 500 Index closed in the green just 45% of the time this year - the lowest since 2002.
🤔 And what are the forecasts for the rest of the year, you may ask? Morgan Stanley expects the S&P 500 Index to plunge another 17%-27% by the end of December 2022.
Why is there stock market volatility?
You can thank our usual culprits: high inflation and the Fed’s response to it.
As part of its efforts to control inflation, the Fed has raised its benchmark interest rate several times in 2022. As the US central bank kept raising rates and the consumer price index continued to rise, investors became worried about a recession.
In addition to this, there have been supply chain bottlenecks caused by Covid-19 pandemic and the Russia-Ukraine crisis.
All of these factors deterred many investors from buying risky speculative assets like stocks, blowing a hit to the stock market valuations.
So, If you own stocks or plan to invest in the stock markets, there are several things you could do right now to weather the storm.
In a bear market, rebalance your portfolio
Or, in other words, review your risk tolerance.
Stock market volatility can be a financial disaster if your whole portfolio contains only one type of asset. This is why diversifying your investments is so important.
In a bear market, your investment losses could be less severe if you invest in different industries and different types of assets.
This is why investors tend to shift some of their money from riskier assets to safer ones, such as gold and precious metals.
Here’s a recent example: stocks fell while gold rose in reaction to Russian President Vladimir Putin’s comment accusing the West of “nuclear blackmail” last week.
There’s a general agreement that, during market turmoil and geopolitical tensions, riskier assets like stocks and high-yield bonds tend to decrease, while gold and US Treasuries usually go up:
- During the 1973 recession, gold’s price rose by 87% in 16 months, while the S&P 500 Index fell by 13%.
- During the 2007-2008 crisis, gold rose by 16% in 18 months, while the S&P 500 Index plunged by 37%.
- Most recently, the gold price reached an all-time high in 2020 during the Covid-19 pandemic.
In 2022, Gold remains a safe haven amid stock market and bitcoin meltdown. That’s why investing in gold regularly can help you protect your wealth over time.
Focus on your long-term goals
This means planning financial goals for yourself that will take at least 5 years to accomplish. Here are a few tips:
- Pay off your debt, if you have any.
- Build an emergency fund and fine-tune your budget.
- Save up for a house down payment.
- Invest in gold and precious metals. With the current market volatility; buying gold ad a saving solution could benefit you in the future.
Another long-term goal could be to start diversifying your revenues:
- Start a side business that inspires you. If you have a hobby such as making art or pastry or selling vintage clothes, if you’re thinking of opening an online shop, or if you have a sound business idea that might be worth exploring, starting a side business can be a way to add a new revenue stream to your portfolio.
- Educate yourself in an unrelated discipline. Learning new skills is a good way to secure a broader range of future prospects, especially if you have a backup career in mind.
Navigating Stock Market Volatility: the wrap-up
The S&P 500 Index had its worst first half of the year since 1970, losing almost 21% in the first six months. It also closed in the green only 45% of the days this year - the lowest since 2002.
But, good news! It’s never too late to protect your wealth. Here’s how to prepare:
- Rebalance your portfolio by shifting some of your investments from riskier assets to safer ones.
- Focus on your long-term financial goals by saving and creating new revenue streams.
💡Gold meets both criteria. It’s a historically less volatile asset compared to stocks, which also tends to be resilient against inflation. For this reason, building your gold savings could benefit you and your family in the future.
