Oscar Wong | moment | Getty Images
The newest stock market investors seem to like what they’ve seen so far.
Among individuals who started investing last year, 86% plan to increase their equity holdings in 2022, according to a recent survey from Investing.com. This is despite the fact that few of them (67%) are making a profit in 2021 compared to more experienced investors (87%).
They also expect shares to appreciate significantly more this year (84%) than seasoned investors (75%). However, they may want to prepare for the turmoil.
“After completing another strong year of gains in 2021, there is plenty of reason to be cautious about the stock market in 2022,” said Jesse Cohen, chief analyst at Investing.com.
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“Looking ahead, stocks appear poised for a volatile year amid risks related to the Fed’s tightening plans and the ongoing coronavirus health crisis,” Cohen said.
Amid persistent inflation – about 7% over the past year – the Federal Reserve is expected to back down on bond purchases, which were implemented early in the pandemic as a way to prop up the economy. The Fed is also expected to raise its key interest rate three or four times this year, starting in March.
The past year has seen an increase in the number of new investors. Factors contributing to the boom include the availability of commission-free deals, high levels of personal savings, and no shortage of investment information online, including from fellow investors on social media.
Of course, it didn’t hurt that aside from a few dips, the market just kept going up and up. The S&P 500, a broad measure of US corporate performance, ended the year with a gain of 26.9%. The average over time is about 10%.
Compared to more experienced investors, newer stock traders tend to be younger (63% of generations X, Y and Z), earn less personal income (only 24% earn $100,000 or more) and are more likely to be female than their generations . More experienced peers (37% vs. 17%), according to the survey. They are also more likely to use Reddit or other social media platforms to inform their investment decisions (42% vs. 19%).
“This group is more optimistic than the older generation, and they do their own research on social media platforms like Reddit, Tiktok and Twitter rather than pay attention to Wall Street analysts,” Cohen said.
While there is no way of knowing for sure where the market is headed, new investors should consider how they would react if stocks went south and stayed there for a short time. In other words, they may want to assess their risk tolerance. This is generally a combination of how well you can tolerate market fluctuations and how long you need to cash out.
Also, remember that when your property loses value, you lock in that loss only if you sell. So if you believe in the long-term prospects of a company but sell when its stock goes down, you may lose out on future gains.
“The good news is that the stock market has a track record of recovering from heavy losses and hitting new highs,” Cohen said.
The survey of more than 1,600 US investors was conducted online from December 29 to 31.