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Tag: investing tips

How to prepare for 2022 as an investor

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Next year is rapidly approaching, and after all the volatility lately, 2022 cannot arrive soon enough. Investors are now confronting the double whammy of the new Omicron variant and a more hawkish Federal Reserve.

With continued gridlock in Congress and possible tax increases on the horizon, investors are understandably confused as to which direction the market is heading.

With less than a month to go in 2021, what should an investor do now to be well-positioned for the new year?

Take Tax Losses to Offset Gains

Equities across the board are up by more than 20% for the year, with technology performing particularly well. Cryptocurrencies like Bitcoin and Ethereum have doubled in value. Meme stocks, like AMC and GameStop, which have gained a strong following on social media, have exploded this year. If you have sold any of these during the year, you could have massive gains.

Check your taxable portfolios to see if you have any losses to use against these gains. As always, consult with your tax advisor, but selling your losers may lower your tax bill in April.

Decrease Bond Holdings

Maybe you have too much money invested in low-yielding bonds. Longer duration or interest rate sensitive bonds could get hurt in a rising interest rate environment. With the 10-year U.S. Treasury bond only yielding 1.5% today, and inflation running at over 6%, odds favor two to four interest rate hikes in 2022.

If the Federal Reserve does start raising interest rates next year, a 1% move higher in rates on the 10-year bond will mean a 10% loss. If we experience worse than expected inflation, bonds could be a disaster.

Bet on Equities

This may be the time to consider increasing the allocation of stocks in your portfolio to 70% and lowering bonds to 30%.

If interest rates rise in 2022 because of inflation, bonds will underperform stocks. Inflation also helps companies in the cyclical/value sectors like those in the financial, energy, and industrial industries because they can raise prices in response, which increases their profits. So, you may want to have some exposure to these stocks as a hedge.

Now is not the time to take your eye off the ball. If you think 2021 was difficult to be an investor, 2022 could be even harder. However, by making these simple moves–taking losses, reducing bonds, and investing more in equities, you can look ahead knowing you are well prepared for whatever surprises 2022 may throw at us.

Happy New Year!

Thumbnail Fred Taylor Headshot Current Fred Taylor is a Partner, Managing Director at Beacon Pointe Advisors, LLC.

Important Disclosure:
The information contained in this article is for general informational purposes only. Opinions referenced are as of the publication date and may be modified due to changes in the market or economic conditions and may not necessarily come to pass. Forward-looking statements cannot be guaranteed. Past performance is not a guarantee of future results. Beacon Pointe has exercised all reasonable professional care in preparing this information. The information has been obtained from sources we believe to be reliable; however, Beacon Pointe has not independently verified or attested to the accuracy or authenticity of the information. The discussions, outlook, and viewpoints featured are not intended to be investment advice and do not consider specific investment objectives or risk tolerance you may have. All investments involve risks, including the loss of principal. Consult your financial professional for guidance specific to your circumstances.

How to help teens understand investing, part II

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Many people are under the impression that you have to wait until later in life to invest, but there are many benefits to starting early.

Parents who encourage their teens to start investing early on in life can help them get a head start on retirement and instill good financial practices.

Teens have many years ahead of them to invest and if they do so early, they have the potential to build a strong financial foundation to achieve their future goals. Here are some helpful tips to teach your teens about the basics of investing.

Follow the stock market

One way you can teach your teens about investing is by showing them your own stocks, if you have them, and talking about what companies you are investing in and showing how they have done over the course of several years. Then ask your teen what company they would like to invest in—many end up selecting companies they are familiar with like Apple or Amazon. From there, you can either purchase a few shares or follow the stock every day together for a few weeks, so that your teen can experience how markets have up-and-down cycles and understand the risks and rewards.

Have a healthy mix

Remember the saying, “don’t put all of your eggs in one basket,” well the same goes for the stock market. It’s important to teach your child that you should be investing in a collection of financial investments like stocks, bonds, commodities, cash and exchange traded funds (ETFs) instead of just one individually. It’s also a good idea to be diverse in the companies, industries and size of businesses you invest in.

This is called the portfolio theory, an investment strategy that works to minimize market risk while maximizing returns through diversification.

This means you are spreading your money out across different investments to manage risk and reduce the volatility in the overall marketplace.

For example, if you own a piece of five companies and one doesn’t do well, you have four others working in your favor and your overall wealth doesn’t fall with the one stock. This shows why a diverse portfolio is essential to your overall financial health.

Teach patience

One of the most interesting parts to investing is how money grows over the years, and that the longer you invest, the more money you gain.

Teaching your kids patience and to look for long-term rewards instead of instant gratification is a great lesson.

It’s also imperative to understand that market volatility is normal and to remember to look at the long-term return on investments rather than the short-term gain. This will teach kids to observe how your investments do over time and adjust as they go.

Consider a custodial account

Once your teen has a grasp on how to invest, consider allowing them to have an account where they can see how investing works firsthand.

A custodial account is a financial account that is set up for minors and allows them the opportunity to save, while still retaining full control over the account until they are an adult. This account can give your teen the opportunity to learn some basic investing skills. Sit down with your teen before you open the account to set financial goals and discuss investment choices.

Every month be sure to go over account statements, your investment mix and discuss what happened and why, did the account grow or were there some losses? This can be a great learning opportunity while also creating future investments.

It’s never too early to teach your children about money and investing. By introducing your teen to basic investing strategies early, it can help them lay a strong financial foundation that will last into adulthood.

If you’re interested in learning about investing tips for teens and kids, check out this article.

Abby Wendel is the president of consumer banking at UMB Bank.

Securities and Insurance products are: NOT FDIC INSURED | NO BANK GUARANTEE | NOT A DEPOSIT | NOT INSURED BY ANY GOVERNMENT AGENCY | MAY LOSE VALUE