Money Magazine: The one thing investors should focus on in 2022

In the News

Publish Date: 28 January 2022

We’ve only just crossed the threshold into 2022, and already it’s shaping up to be another weird year.

Rapid antigen tests have become the latest hot commodity, knocking toilet paper off the throne as the new consumer must-have.

And after two years of being encouraged to “come forward and get tested”, we’re now being asked to stay away from testing centres.

It’s all very confusing and stressful. But what does it mean for investment markets?

Short of consulting Nostradamus, it’s hard to say. Despite all the dislocation we experienced last year, the S&P 500 – the leading US market index, spun a 26.9% annual return in 2021. Global shares notched up 20%-plus gains, and Aussie shares recorded double-digit growth while property values across Australia soared 22%.

Who would have thought that at the start of 2021?

The one step we should take

Back to 2022, and with words like ‘crisis’ and ‘shortage’ bombarding us via daily news broadcasts it can be easy for investor confidence to take a battering.

But there is one simple step we can – and should – take as investors. And that’s shutting out the daily ‘noise’, and focusing on what we can control.

Yes, the pandemic can be overwhelming. But so much of what is happening is out of our hands.

What we do have 100% control over is what we invest in, how much we invest, and how we manage our portfolio.

That’s very reassuring in a turbulent world. And right now, the need for context and a clear head has never been more important.

Research is critical

Good research is always the key to successful investing. In fact, it should be the number one driver when it comes to choosing which companies, industries and even geographical markets you invest in.

The problem is that research takes effort, and it calls for us to stay focused on the essentials.

Firstly, look at what the company does. If you don’t understand its business, don’t go any further.

Check out the track record and expertise of a company’s management; the quality of its assets; and its plan for using your money to create a profitable business. If all this stacks up, it could be worth investing in.

The downside is that this sort of extensive research takes time – and that can mean missing out on opportunities.

That means finding tools and platforms that can help you out with that research.

What comes next?

When it comes to what happens next in sharemarkets – over the short term at least, your guess is as good as the next person’s.

Here too though there are issues investors can focus on. Like spreading your money across a range of different stocks as a proven way to manage risk.

The other perspective is to remind yourself that while sharemarkets can be unpredictable over short periods, history tells us that long term returns can really stack up.

While past returns are no guide for future, over the last five years to early January 2022, the Australian sharemarket notched up capital growth of 32%. Add in dividends, and sharemarket investors have pocketed returns averaging 17.4% annually since the start of 2017. If someone had told you that was the return you would get five years ago, most people would have happily signed up.

The bottom line is to focus on what you can control as an investor in 2022. It could see you lay the foundations of a high-performing long term portfolio – one that hopefully rewards you long after the pandemic is done and dusted, when we all look back in wonder at the time when toilet paper was a prized possession.

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