With three years of good returns, inflation and interest rates rising globally, investors could be in for a very volatile 2022
The year 2021 will go down as the year of rookie investing. With the large-scale adoption of cryptocurrencies and betting on IPO listing gains, the efficacy of traditional investments were questioned but were still chosen by many investors.
How 2021 progressed
-Buy Now pay later took Indians by storm and they found an easier and cheaper way to buy everything they want, including a plate of Idli.
-The second wave of Covid did get people to focus on building financial security and almost 80 percent of people surveyed by Finsafe, had built reasonable emergency cash and insurance.
What is the best investment for 2022?
With three years of good returns, inflation and interest rates rising globally, investors could be in for a very volatile 2022. Not even a month into the New Year, there is over 50 percent correction in Bitcoin and Nifty 50 is down 6 percent from its peak. Investors are getting uneasy and asking how to align their investments.
This is where process triumphs over products. With the right process, one does not need to take multiple decisions at multiple points. The best investments for 2022 are having a structed financial plan and patience. A financial plan will help investors identify how long assets are to be held for and not be worried about short term swings.
Patience is a rare but crucial investment commodity. Seesawing markets and negative headlines, triggers the wrong response in investors. This explains why investor returns lag benchmark returns. Investors should remember that 7-10 percent drawdown in a year is normal and markets often make higher lows than before. Over long term periods(10 years+) markets have given positive return more than 95 percent of the time. Furthur, markets also go up by a much higher margin. Patience and restraint should be the choice of 2022.
What can be done to improve investors’ experience?
Regulation of cryptocurrencies is urgently required. There is also a pressing need to put in place advertising and disclosure norms for platforms, stock baskets, cryptocurrencies and products like P2P, Invoice discounting, fractional property. Too many investors are investing blindly in these products without understanding the risks and hence mass media financial literacy need to be done. I have suggested earlier, that the risks in any product need to be highlighted more than the returns and norms for product manufacturers to do so, should be formulated.
In the Finsafe survey, 55 percent of the participants want detailed financial planning and 43 percent found planning for financial goals the biggest financial challenge. This need for financial planning is a big opportunity for financial advisors and will help them show value add through their expertise and judgment over product selection.
The most important money management tool to focus on in 2022 would be to bring structure and discipline in your finances, which can be achieved through a financial plan. Happy Investing!
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