It seems like we are entering another, more or less, uncertain year. In 2020, markets were shaken and stirred, predictability went for a toss, and the world turned upside down. Two years since the pandemic, we are settling into the ‘new normal’ and can predict a few things. Whether you are a newbie who has just begun online investing or a seasoned investor, these pointers will be of help.
What You Can Expect in 2022 as an Investor?
- Slow growth combined with high inflation, a possible third wave of Covid, and a tighter monetary policy could affect most assets. These include equities, cash, bonds but probably not real estate and gold.
- There has been an 18-month bull streak, so discretion is advised.
- Risks and opportunities are balanced. A balanced market cap-agnostic strategy could work better.
- SIP flows in equity mutual funds have been rising. This trend is expected to stay strong and provide strength in turbulent times.
What You Need to Keep in Mind in 2022 as an Investor
- Risk Diversification
As per research, portfolio risks increase with a decrease in the total number of stocks. However, after a point, it becomes ineffective. After 20 stocks, the risk remains constant. Hence, having a little too many equities in your portfolio wouldn’t always mean long-term wealth building.
- Portfolio Holdings
The truth is that when you invest in the share market, only a few high-quality company stocks are enough for reaping benefits. Once you have these in your portfolio, you may stick to your assets for years, sitting tight in your place. Long tailstocks degrade portfolio quality and negatively impact long-term performance compared to concentrated stocks.
- Specific Focus Portfolio
From the previous point, too many cooks (stocks) can spoil the broth (portfolio). With an increase in the total number of stocks, you can invite a high risk of dipping portfolio performance due to a few stocks that do not perform well or might be challenging to manage.
Investors known for their brilliant wealth development planning typically invest in a few high-quality stocks and focus on managing them properly. Hence, having a reasonably high number of high-quality stocks provides a larger scope for focused research and implementation of strategies.
- Quality Portfolio Investing
Having a concentrated share trading portfolio with the best stocks that show strong potential is highly advisable. Even after considering the prospect of compounding, you wouldn’t want to dilute your concentration on stocks that are not bringing significant value. The attention you pay to your stocks also impacts the quality of your portfolio.
Reiterating the core of this analysis, stock quality is one of the essential elements in a targeted portfolio.
Conclusion
Just as in other avenues of life, balance is critical for long-term wealth accumulation through investing. If your portfolio is strong from a larger picture point of view, it reflects the quality of stocks and the restricted number of stocks in the portfolio.