- Last year’s crop of new investors are more optimistic than their more experienced counterparts that stocks will rise in value this year (84% versus 75%).
- There are some reasons to be cautious about stocks’ performance this year, experts say.
- New investors may want to evaluate their risk tolerance ahead of any possible prolonged downturn in the markets.
The stock market’s newest investors appear to like what they’ve seen so far.
Among individuals who began investing last year, 86% plan to increase their stock holdings in 2022, according to a recent survey from Investing.com. This is despite fewer of them (67%) making a profit in 2021 than more experienced investors (87%).
They also largely expect stocks to rise in value this year (84%) more so than more seasoned investors (75%). Yet they may want to brace for turbulence.
“After wrapping up another strong year of gains in 2021, there are plenty of reasons to be cautious about the stock market in 2022,” said Jesse Cohen, senior analyst at Investing.com.
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“Looking ahead, stocks look set for a volatile year amid risks related to the Federal Reserve’s tightening plans and the ongoing coronavirus health crisis,” Cohen said.
Amid persistent inflation — about 7% over the last year — the Federal Reserve is expected to back off its bond buying, which was implemented early in the pandemic as a way to prop up the economy. The Fed is also expected to raise a key interest rate three or four times this year, starting as early as March.
Last year was marked by a surge in new investors. Factors that contributed to the boom include the availability of commission-free trades, higher personal savings levels and no shortage of investing information online, including from fellow investors on social media
And, of course, it didn’t hurt that aside from a few dips, the market just kept going up and up. The S&P 500 Index, a broad measure of how U.S. companies are faring, ended the year with a 26.9% gain. The average over time is about 10%.
Compared with more seasoned investors, those newest to stock trading tend to be younger (63% are from Generations X, Y and Z), earn less personal income (just 24% earn $100,000 or more) and are more likely to be female than their more experienced counterparts (37% versus 17%), according to the survey. They also are about twice as likely to use Reddit or other social media platforms to inform their investment decisions (42% versus 19%).
“This group is more upbeat than the older generation, and they’re doing their own research on social media platforms like Reddit, Tiktok, and Twitter instead of paying attention to the Wall Street analysts,” Cohen said.
While there’s no way to know with certainty where the market is heading, new investors should consider how they’ll react if stocks head south and stay there for a bit. In other words, they may want to evaluate their risk tolerance. This is generally a combination of how well you can stomach volatility in the market and how long until you need to cash out.
Remember, too, that when your holdings lose value, you only lock in that loss if you sell. So if you believe in the long-term prospects of a company but sell when its stock is down, you could be missing out on gains down the road.
“The good news is that the stock market has a consistent track record of recovering steep losses and rallying to new records,” Cohen said.
The survey involved more than 1,600 U.S. investors and was conducted online Dec. 29-31.
