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The stock market is off to a rough start in 2022, as investors are concerned about rising interest rates and the impact of high inflation on the economy. The S&P 500 Index has fallen by nearly 20 percent so far this year, and bonds have tumbled, too. The tech-heavy Nasdaq Composite is down even more, falling by more than 26 percent as of June 27.
In a new Bankrate survey, a group of investing pros revealed where they’d recommend clients to invest in 2022 to further grow their wealth. We asked respondents in the Second-Quarter Market Mavens survey: “Where, or how, would you advise a typical client to invest $10,000 right now?”
Their answers revolved around the themes of reducing risk and sticking to your long-term plan. Some suggested holding cash and waiting for volatility to settle down.
Forecasts and analysis:
This article is one in a series discussing the results of Bankrate’s Market Mavens second-quarter survey:
- Top analysts see rebounding stock market over the coming year
- Expect 10-year Treasury yield to approach 4% over the next year, pros say
- Best ways to invest $10,000 today, according to experts
- 4 top tips to protect your portfolio against a recession
How to invest $10,000 right now
The survey’s market watchers pointed to a number of strategies for reducing risk amid the market volatility, with many suggesting investors hold a portion of their portfolios in cash as the Federal Reserve hikes interest rates to fight inflation.
1. Keep a balanced portfolio
The markets are expected to see continued volatility the rest of the year as the Fed raises interest rates and reduces other monetary stimulus to the financial system. Some of the survey’s respondents stressed the importance of building a balanced investment portfolio to protect against volatility.
Dec Mullarkey, managing director, SLC Management, suggests investors with $10,000 invest 50 percent in equities and 50 percent in shorter-term U.S. Treasurys.
“Equities have seen a significant repricing as the Fed normalized policy, and given how flat the yield curve is, investors can earn a competitive coupon in two- to three-year Treasurys,” he says.
Jeffrey Buchbinder, equity strategist at LPL Financial, also suggests investors stick to a balanced portfolio of 62 percent equities, 33 percent bonds and 5 percent cash. The result is close to a fairly standard 60/40 portfolio. He does suggest investors maintain below average fixed income duration as a way to shield themselves from rising rates and argues for investments in value stocks over growth stocks.
2. Stick with the blue chips
High-quality stocks – the so-called “blue chips” – are often a port in the storm, because they represent strong companies that will continue to thrive over time. Blue chips include large-company stocks such as Apple, JP Morgan Chase and Walmart, all of which can be found in the S&P 500.
Robert Brusca, chief economist at FAO Economics, says investors should avoid risk and suggests focusing on “large company stocks.” If you’re investing in fixed income, floating-rate notes are safer as yields rise, he says.
Jim Osman, founder of research group The Edge, says investors should buy an S&P 500 Index fund or another “good quality index with great American companies.”
Many investors appreciate the income generated by dividend stocks, and the dividend offers some return even while the market may be volatile.
Horizon Investment Services CEO Chuck Carlson has a simple portfolio allocation investors should consider: 70 percent in dividend-paying stocks and 30 percent in cash.
3. Wait it out in cash
Several survey respondents said the best thing to do now is wait out the market’s current volatility by holding cash.
Brad McMillan, chief investment officer at Commonwealth Financial Network, and Sam Stovall, chief investment strategist at CFRA Research, said cash was the best place for investors to be right now. Envision Capital Management CEO Marilyn Cohen agreed, saying that certificates of deposit, or CDs, were where investors should park their funds.
Michael Farr, CEO of investment firm Farr, Miller and Washington, suggested an investor with $10,000 to invest should put half of it into an S&P 500 index fund today and the other half should be invested in a few months, September or October. By holding half of the funds in cash for a brief period, you can take advantage of any further market declines. But you’ll also benefit from the half that is invested if there is a market recovery, allowing you to benefit from different market scenarios that could play out.
“Markets won’t see a bottom until the Fed sees a top in rates,” he said.
4. Value stocks may outperform growth stocks
Value stocks were mentioned multiple times by survey respondents as an attractive option. Value stocks tend to perform well during periods of rising interest rates, while many investors move out of growth or momentum stocks, pushing this latter group lower.
About two-thirds of the survey respondents preferred value stocks versus growth stocks. Recently, some once high-flying growth stocks, such as Meta Platforms, Netflix and PayPal, have been added to value-focused indices.
Value stocks have been a popular pick among our investing experts in the last few quarterly Market Mavens surveys.
If you’re investing in individual stocks, it’s important to remember that stocks may be cheap for concerning reasons, such as the possibility that their business is permanently impaired. So, you’ll need to carefully analyze them before you buy. However, you can buy an ETF with value stocks in it and enjoy the power of diversification to reduce your risk and time spent analyzing stocks.
Bankrate’s second-quarter 2022 survey of stock market professionals was conducted from June 9-16 via an online poll. Survey requests were emailed to potential respondents nationwide, and responses were submitted voluntarily via a website. Responding were: Dec Mullarkey, managing director, SLC Management; Brad McMillan, chief investment officer, Commonwealth Financial Network; Jim Osman, founder, The Edge Spinoff Research; Patrick J. O’Hare, chief market analyst, Briefing.com; Jeffrey Buchbinder, equity strategist, LPL Financial; Robert A. Brusca, chief economist, FAO Economics; Sam Stovall, chief investment strategist, CFRA Research; Chuck Carlson, CFA, CEO, Horizon Investment Services; Kenneth Chavis IV, CFP, senior wealth manager, LourdMurray; Kim Forrest, chief investment officer/founder, Bokeh Capital Partners; Marilyn Cohen, CEO, Envision Capital management; and Michael Farr, CEO, Farr, Miller & Washington.
Editorial Disclaimer: All investors are advised to conduct their own independent research into investment strategies before making an investment decision. In addition, investors are advised that past investment product performance is no guarantee of future price appreciation.