Your retirement account might have been hammered by market volatility in 2022, especially if it was heavily invested in stocks, as higher inflation, interest rates, and recession worries took a bite out of the average retirement portfolio.
While it's often scary to invest new money, and it may be tempting to dump your investments when markets sour, experts caution that's typically a bad move. Investing often helps build wealth, and you could miss out on gains when the market recovers.
Historically, bear markets have lasted about a year or less, and losses were about 36%. But bull market runs, which follow bear markets, have lasted an average of 3.8 years, and have seen total gains average around 112%. This is likely not the first bear market your portfolio has seen, and it probably won't be the last.
If you're wondering what to do differently going into 2023, start by taking inventory. Are you more heavily invested in one sector or company than others? For example, higher interest rates impact tech and growth stocks more than other kinds of stocks. Higher interest rates eat into future growth for companies, so when they experience aggressive growth very quickly (like tech companies), higher rates tend to have a bigger, more negative impact.
Consider diversifying your portfolio by looking at index funds or exchange-traded funds (ETFs) to reduce your risk. If you do this, your overall portfolio will be better able to handle losses. And in a few years when the markets are surging, you'll probably be glad you didn't pull back from investing.
- Kristin
Programming Note: We'll be taking another short break for the new year holiday. There won't be a newsletter tomorrow or on Monday, but we'll be back in your inbox on Tuesday. From us here at The Balance, we want to wish you, your family, and loved ones a safe and happy new year!
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