Why Ordinary Investors Got Hit So Hard in 2022: A Morning Brief

The year 2022 was a tough one for investors, with the S&P 500 index falling by more than 20%. But ordinary investors, who tend to have less money to invest and less experience in the markets, were hit even harder.

There are a number of reasons why ordinary investors were hit so hard in 2022.

The Federal Reserve's interest rate hikes

One of the biggest reasons for the market sell-off was the Federal Reserve's decision to raise interest rates. In an effort to combat inflation, the Fed raised rates by a cumulative 4.25% in 2022. This was the largest increase in interest rates since 1980.

Higher interest rates make it more expensive for businesses to borrow money, which can lead to slower economic growth. This, in turn, can lead to lower corporate earnings, which can hurt stock prices.

The War in Ukraine

Another factor that contributed to the market sell-off was the war in Ukraine. The war has caused a great deal of uncertainty in the global economy, which has led to investors selling stocks.

The war has also disrupted supply chains, which has led to higher prices for goods and services. This, in turn, has contributed to inflation, which has also hurt stock prices.

Rising Inflation

Inflation was another major headwind for investors in 2022. Inflation rose to a 40-year high of 8.6% in May, which has made it more expensive for consumers to buy goods and services.

Rising inflation can lead to slower economic growth, which can hurt corporate earnings and stock prices. It can also lead to higher interest rates, which can also hurt stock prices.

The rising cost of living

The rising cost of living has also made it more difficult for ordinary investors to save money. With prices rising for everything from food to gas, it has been harder for people to put money aside for retirement or other financial goals.

This has made it more likely that ordinary investors will have to sell their stocks when the market declines, which can exacerbate the sell-off.

What Can Ordinary Investors Do to Protect Themselves?

There are a few things that ordinary investors can do to protect themselves from the next market downturn.

First, it is important to have a diversified portfolio. This means investing in a variety of asset classes, such as stocks, bonds, and real estate. By diversifying, you can reduce your risk if one asset class performs poorly.

Second, it is important to have a long-term investment horizon. This means investing for the long term, such as 10 years or more. By investing for the long term, you can ride out short-term market volatility and focus on the long-term growth of your investments.

Finally, it is important to have an emergency fund. This is a savings account that you can use to cover unexpected expenses, such as a job loss or a medical emergency. By having an emergency fund, you will not have to sell your investments when you need money, which can help you protect your portfolio during a market downturn.

Conclusion

The year 2022 was a tough one for investors, but there are steps that ordinary investors can take to protect themselves from the next market downturn. By diversifying their portfolios, investing for the long term, and having an emergency fund, ordinary investors can reduce their risk and improve their chances of success in the markets.

 

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