of S&P 500 and the NASDAQ Composite 2022 saw a 19% and 33% drop respectively for the full year. This was the worst performance of these two widely held indices since 2008, at the height of the Great Financial Crisis.
When will investors likely stock market recoversThis is a valid question, especially after many portfolios were in the red in 2022. But this is the wrong question. This is a more important factor for investors to consider now.
change perspective
Trying to predict exactly when the stock market will recover is impossible. Timing the market is a loser’s game. Because not everyone can do it consistently and accurately. There are a myriad of variables that can affect stock prices in the short term, but investor sentiment is the most prominent. If from now on he can’t even predict how he will feel six months from now or 12 months from now, how will he know how other market participants will feel?
A better question is “What is my time range?” For investors who measure their investment life in decades, what happens in a year is nothing to keep them awake.
To be fair, it is arguably more pressing for investors nearing retirement or nearing retirement to have the market recover sooner or later. But if people find themselves in this position, why did they invest so much in stocks in the first place, for a recession year like 2022 to hurt them so badly?
If you have a long-term mindset about investing, say you have a time horizon that spans over 10 years, the best course of action is to add to your portfolio every month. dollar cost averagingAs we know, it means buying stocks on a regular basis regardless of market conditions. Waiting for the market to recover is not a big concern for you.
Image Source: Getty Images.
Thinking about the Federal Reserve
Needless to say, the Federal Reserve and its monetary policy have had the most impact on stock prices over the last several years. For much of the past decade, the Fed has introduced a slow and stimulating approach to boosting the economy out of her 2008/2009 crisis, and more recently the coronavirus pandemic.But in 2022, as inflation surged, the Fed aggressively raise interest rates, and this is set to continue in 2023. As a result, the stock price went into a downward spiral.
No one knows what the central bank will do next. And while his words are under close scrutiny, Fed Chairman Jerome Powell doesn’t even know what the next step will be.The only constant in the economy is change. So retail investors are best not even paying attention to these things. Because it can keep you off the road of regularly adding to your portfolio.
Markets can go up and down in any given month, quarter, or year. That’s the reality. Equity investors should be aware of this fact before buying anything. But there are bright spots. Over the long term, the market will go up and reward those who have the most patience.
So it’s important to stick to your plan, maintain a long-term mindset, and ignore the noise. These are all under your control. And given enough time, you should be incredibly happy with your decision.
