Investing is a topic that many people have an interest in following. But, whether you are new to investing or an experienced investor, there is always something to learn. This article will cover what investments you should be watching going into 2022.
With markets at all-time highs and inflation starting to increase to levels we haven’t seen since 2008, here are a few areas to be looking at within your portfolio.
Why should I be watching bonds investments?
Bonds are historically known as the safe haven for investors due to their lower price movement and the income they routinely generate. However, the low-interest-rate environment has made it difficult for bond funds to earn income. With the current quantitative easing program and high inflation, investors are concerned about their holdings losing value. When interest rates rise due to inflation, bond funds will fall.
Why should I be watching technology?
Rising interest rates affect technology stocks because the discount rate used to value future cash flows rises as interest rates rise. Companies in the technology sector are often viewed as highly risky because they have high growth rates but low incomes. Thus, investors demand a hefty risk premium on their investments which are affected by rising interest rates. The technology index is shown below in blue (QQQ) went in the opposite direction of interest rates (shown in gray). When interest rates are higher, the technology index is lower; the technology index is higher when interest rates are lower. With interest rates near historic lows, there appears to be some risk in the technology sector.
What are some alternative investments?
One way to protect against rising inflation in a bond fund is to shift some funds into an indexed annuity fund. An indexed annuity is a tax-deferred, long-term savings option that provides principal protection in a down market and opportunity for growth. As a result, it gives you more growth potential than a fixed annuity, along with less risk and less potential return than a variable annuity.
Technology stocks have been on an incredible run over the last ten years, and it might be time to rebalance your portfolio. Rebalancing is when you buy and sell portions of different assets to return their weights to their original allocation. Rebalancing is necessary because while you might believe you only have 10% in high-risk technology, you might have 20-25% due to increased stock prices over the years.
When should I get a professional involved?
The financial markets are constantly changing. So while these are a few areas to be looking at going into the new year, they might not be the same areas to focus on the following year. A fiduciary advisor can help guide you through market changes and set you up with a financial plan so that no matter what interest rates or technology is doing, you can feel secure in your future.