The markets have been volatile over the past few years, making it a difficult environment in which to plan a long-term investment strategy. However, someone needs to start thinking about their plan for 2022 now to capitalize on opportunities and minimize risk. Here are some tips for preparing one’s portfolio for 2022:
Review the equity allocation and diversify across geographies
Geographical diversification can reduce volatility, as different regions will be affected by varying economic factors. This can enable one to reduce the impact of global shocks on their portfolio and capitalize on dramatic growth potential in emerging markets.
Consider investing in different types of assets
The traditional portfolio has included cash, stocks, and bonds; however, more exotic asset classes, such as real estate or hedge funds, may have the potential to diversify even further. Investing in more than one of these assets can help smooth out returns and reduce risk.
Have a plan for when to rebalance
Rebalancing is the process of selling the investments that have gone up in price and buying more of those with lower prices. This can help to correct any over or underweights and keep the portfolio on track.
Review the underlying investments
The investments held in a portfolio can change over time. All funds, securities, and stocks will have different risk profiles, so it’s essential to periodically review these holdings and make sure the portfolio still matches the investor’s risk tolerance.
Address any cash buildup
With interest rates at historic lows, investors may see a considerable amount of their savings sitting in cash. However, holding too much cash can actually reduce portfolio returns, as it earns a lower rate of return than most other assets. It may be necessary to reinvest this money to achieve the desired growth.
Have a plan for taxes
Taxes can take a significant chunk out of returns, so planning is important. For example, utilizing tax-advantaged accounts can help reduce the amount of taxes paid on investment income.
A plan for 2022 should include investing in high-quality research that can provide one with an understanding of the latest industry trends. BlackRock has written many helpful guides on the global economy, specifically aimed at helping investors understand what opportunities are opening up in different regions. This can help make better investment decisions and stay ahead of the competition.
No one can predict the future with certainty, but planning ahead is one of the best ways to ensure success. By following these tips, an investor can put themselves in a strong position to capitalize on opportunities and navigate any market volatility that may arise.