The combined wealth of the world’s 500 richest people fell by a whopping $1.4 trillion in 2022, according to Bloomberg. The cumulative net worth of big-name billionaires Elon Musk, Jeff Bezos, Changpeng Zhao, and Mark Zuckerberg dropped $392 billion. Zuckerberg saw his net worth drop 65% and Musk is down 51%, due in large part to him buying Twitter and Tesla’s stock price drop.
You didn’t have to be a billionaire to lose money in 2022, and chances are your portfolio is in the red as well. Investing always carries risk, and there will be years when stock values decrease. The trick is to manage that risk, keep your eyes on the long term, and avoid panic selling.
Some major macroeconomic events kept even some of the savviest investors from making a profit in 2022. Russia’s war in Ukraine, sky-high inflation, and the Federal Reserve’s aggressive rate hikes all affected the global economy. As Bloomberg points out, it’s an end to the “Covid era of easy money.”
We don’t know what will happen next year, and unfortunately, stock values may fall even further. But that’s why a long-term perspective is important.
It’s easy to look at the repeated warnings of an impending recession or the eye-watering losses of these high-profile billionaires and decide to keep your money in the bank rather than investing it. That’s understandable, but if you have money you won’t need in the next five to 10 years, investing could still make sense.
There are a number of ways to invest, including buying stocks, bonds, real estate, or other assets that might generate income long term. A lot depends on your financial situation and risk tolerance. Just bear in mind that if you think long term and build a diversified portfolio of quality assets, history shows you can build wealth — even during an economic downturn.
If you decide to buy stocks during a recession, one way to reduce the risk is to focus on big name blue-chip stocks with a strong track record, and avoid smaller companies that can carry more risk. Another way is to buy ETFs, which give you exposure to a mix of different companies.
If you’re worried about volatility, consider dollar cost averaging. This involves investing a set amount at regular intervals and can help even out the ups and downs of the market. It also makes it easier to resist the temptation to try to time the market and buy at the absolute bottom.
If the stock market feels too risky, consider other assets such as gold, silver, or bonds. Bonds are relatively safe investments that can play a role in a diversified portfolio, especially if you’re nearing retirement. Part of the attraction is that you can earn a fixed rate of return which varies depending on the type of bond you buy.
Given this year’s soaring prices, it’s hardly surprising that I bonds became particularly popular this year. I bonds are specifically designed to protect your money against inflation. While the rates have fallen and inflation may be slowing, they are still worth looking at if you’re seeking reliable returns.
Before you invest in the stock market or other asset class, make sure your emergency fund is in good shape. That means having enough money in a savings account to cover three to six months’ worth of living expenses — or more. That way if you lose your job or face another financial crisis, you won’t be forced to borrow money or sell your investments, potentially at a loss.
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