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Do Record High Stock Prices Predict A Crash in 2022? Thumbnail

Do Record High Stock Prices Predict A Crash in 2022?

James Zahansky, AWMA®
Principal/Managing Partner, Investment Advisor & Chief Goals Strategist

As we close out a year that brought record-high growth in stocks, many are wondering how long the trend can continue and are anxious about a subsequent crash in 2022 that could have disastrous consequences for retirement savings and other investments. If you’re among them, take heart and take note: the solution to your worries boils down to two simple concepts that are critical to a smart, long-term investment strategy no matter what the current market conditions...

Rule number one: rely on data, not emotion.

While it’s wonderful to see your stock value rise (and then rise even more), it’s natural to feel as though it’s too good to be true. There’s an inclination to believe that what comes up must come down, which often leads to fears that the downturn will result in losing all those previous gains and then some.

It’s true, of course, that the stock market has ups and downs. What is not true is that it always behaves like a seesaw, where a rise must inevitably be followed by an equal or greater fall. Although headlines and soundbites in the media may sometimes sensationalize this misconception, historical data proves it to be untrue.

Declines do happen in the short term, sometimes even sharply. But over the long term, the overall trend is still positive growth. If you look at S&P 500 data from the end of every month beginning in 1926 through 2020, you’ll find a new high in ending wealth in almost a third of those months. Record highs are simply a normal part of long-term growth.

The takeaway here is to approach investing with a level head and a long-term outlook. Don’t get too excited about big short-term gains, and don’t get overly concerned about short-term losses, either. Instead, put emotion aside and use a solid strategy that’s based on historical data, an informed, academic approach to current market conditions and your individual needs and time horizon for when you’ll want to realize those funds.

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Rule number two: diversify your portfolio and make adjustments with the market.

Another factor that leads investors to feel panic in the midst of record-high or record-low stock prices is a sense that they have no control over what happens next. This simply isn’t true.

The market as a whole is certainly beyond any one person’s control. But each individual person is completely in control of his or her particular investment in that market. How? By maintaining a diversified mix of investments that reflects your particular comfort level with risk and your needs for growth.

Maintaining a diverse portfolio is key to minimizing risk and maximizing return. When the market takes a downturn, you may choose to rebalance your portfolio to include more low-risk investments. When it’s on the upswing, you may be more comfortable taking on more high-growth, high-risk investments.

Start by ensuring you’ve got the right balance of risk and growth in your portfolio right now, given your goals and current market conditions. Then be sure not to fall into the “set it and forget it” mind frame, because maintaining that perfect balance requires making adjustments to your allocations from time to time, as the market or your needs change.

Want to feel confident moving forward? Take the guesswork out of investing.

Although the concepts I’ve outlined here are simple, executing on them usually isn’t. Knowing exactly which adjustments to make to your portfolio and when requires constant monitoring of the market, an in-depth understanding of how current events and other factors are likely to affect it going forward, and the expertise to use that information to choose the right investments for your particular needs.

Sound like a full-time job? It is. That’s why partnering with a trusted financial advisor is so important. A data-driven, academic approach to investing coupled with personalized, long-term strategy serves as the foundation of what we do for our clients at Weiss, Hale & Zahansky Strategic Advisors.

We use a data-driven, strategic Plan Well, Invest Well, Live Well process to help our clients move forward toward their goals fearlessly, even in a volatile market. See how we can help you to create a Plan Well, Invest Well, Live Well™ strategy to guide you to your goals.

Authored by Principal/Managing Partner James Zahansky, AWMA®. Securities and advisory services offered through Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. These materials are general in nature and do not address your specific situation. For your specific investment needs, please discuss your individual circumstances with your representative. Weiss, Hale & Zahansky Strategic Wealth Advisors does not provide tax or legal advice, and nothing in the accompanying pages should be construed as specific tax or legal advice. 697 Pomfret Street, Pomfret Center, CT 06259, 860-928-2341. http://www.whzwealth.com (http://www.whzwealth.com).