We’re on the cusp of yet another new year, meaning that it’s time to take stock of what went right or wrong this year and make resolutions for next year. After the dumpster fire that was 2020, many had hoped that 2021 would be different. For some people it might have been, while for others it wasn’t. But we’re all hoping 2022 will allow us to turn a corner and get our lives back to normal.
For investors, 2021 was a bit of a mixed bag. Bitcoin and cryptocurrencies may end up being the best performing assets of the year. Stocks did well, as did real estate, while precious metals will likely end the year flat or mildly down.
No one knows what 2022 has in store, but with inflation rising and the economy feared to be slowing, we could very well end up looking back on 2021 wistfully. Regardless of what happens, though, there are some things that are just plain common sense, things that every investor should think about. So here are five New Year’s resolutions for investors in 2022.
1. Reassess Your Goals
When you first start saving and investing, you may have specific or even just general goals in mind. You want to save for retirement, or you want to save money for your children’s education, for example. In many cases your goals won’t change too much over time, at least until you’ve achieved those goals. But as the past couple of years have demonstrated, sometimes people’s goals change.
More Americans today are beginning to take a good hard look at their retirement goals and dreams. Do they really need that big house? Do they really expect to travel the world in retirement? Do they really want to stay in the busy metropolitan area they’ve been living in for decades?
If you’ve started to think differently about the future, maybe 2022 is the year to start reassessing your goals. Even if your goals haven’t changed, it’s probably worth talking to your financial advisor to make sure that your investment strategy is helping you accomplish your goals.
2. Reassess Your Portfolio Allocation
The conventional wisdom has always been that as you get closer to retirement, your investment portfolio should become less risky. But in a day and age in which inflation is rising to levels not seen in 40 years, what is considered risky?
Bonds have traditionally been seen as the less risky alternative to stocks. But with yields at historic lows, most bonds today could end up losing you purchasing power each year. Can you afford that risk?
This could be the time to start rethinking your portfolio’s allocation and thinking about portfolio diversification. If you’re only invested in stocks and bonds, maybe it’s time to start thinking about alternative assets such as precious metals like gold and silver. And you’ll definitely want to talk to your financial advisor and tax advisor to ensure that whatever investment decisions you make don’t end up costing you either in missed gains or in tax liability.
3. Stay Up to Date on Rules and Regulations
Retirement accounts are getting more attention in Washington than they have in decades. Some of it is good and some of it is not so good.
If you haven’t followed retirement industry news in years, you might not know that required minimum distributions (RMDs) don’t kick in until age 72 now. And there are numerous discussions underway that could further change the way retirement accounts operate.
If you’re getting close to retirement, you’ll want to keep abreast of what’s going on in the world of retirement planning and stay informed about legislative or regulatory changes that could affect your bottom line. Here again it can pay to talk to your financial advisor or tax advisor to make sure that you remain knowledgeable about the rules and regulations that will affect your retirement savings.
4. Prepare for Risk
The risk of a market crash or systemic financial crisis is one which has been growing all the time. The 35% crash in early 2020 was certainly sharp, but it was short, and recovery began relatively quickly. When the next financial crisis comes, it probably won’t be that easy.
The next crisis is the one that many expect, but that has taken so long to materialize that many investors have been lulled into a false sense of security and complacency. They may think that we’re not going to experience another recession or depression, that stocks are at permanently high levels, and that this time things may very well be different. But they’ll find out the hard way when the next crisis hits that that isn’t the case.
Preparing for risk can take many different forms, but in many cases it will mean adjusting the risk profile of your portfolio to minimize your exposure to risky investments. This too will require consultation with your financial advisor so that your investments will properly reflect the amount of risk you’re willing to take.
5. Protect Yourself Against Inflation
Last, but not least, you’re going to want to protect yourself against inflation. Inflation has reached levels not seen in 40 years, and it could very well go higher. Most American investors haven’t even seen an inflationary period like this before, much less invested in one. And that could upend many of the investment choices that they have become accustomed to making.
Holding cash or cash equivalents will become even riskier than it already is, as inflation could take a big bite out of those assets each year. Even bonds aren’t likely to provide real returns. And don’t think that stocks will save you either. Overall annualized returns of major stock market indices over the past two decades are less than the current inflation rate, so if this inflation turns out to be a long-term trend, stock markets may not provide you with the growth that you need.
That’s why many people have begun to turn to precious metals like gold and silver, which have a track record of gaining value during times of high inflation. Gold and silver’s average annualized gains throughout the inflationary 1970s were over 30%. And in the aftermath of the 2008 financial crisis, gold nearly tripled while silver more than quintupled. If gold and silver repeat that kind of performance in the 2020s, precious metals owners could end up very pleased.
While there are probably many more things that you need to do in the new year, hopefully these five New Year’s resolutions for investors will help you get a leg up as 2022 gets off to a start.