There’s no doubt that 2022 has been a difficult year for the stock market so far. All major UK share indexes are down since the turn of the year, and my portfolio has taken a big hit as a result.
But I’m not overly concerned about recent falls. Here’s why.
[top_pitch]
How have stocks fallen this year?
If you’re invested in an index tracker fund, then it’s likely you’ve seen your investments fall this year. The FTSE 100 is down 5% since the year began, the FTSE 250 is down a massive 15% and the FTSE All-Share Index is down 7%.
Stocks haven’t just fallen in the UK. Germany’s DAX 40 sits almost 14% lower than when the year began. Meanwhile, France’s DAC 40 is 12.5% lower. In the United States, the S&P 500 is down 13% compared to its value at the beginning of January.
How have recent falls impacted my portfolio?
No one likes to see the value of their investments fall, but of course, some investors will see recent falls as an opportunity to buy stocks at perceived ‘knock-down’ prices. However, this isn’t the strategy I choose to follow.
That’s because I consider myself a passive investor rather than an active investor. In brief, an active investor may be keen to pick up bargains whenever stocks fall. These investors may also trade regularly in order to make a quick buck, especially in volatile markets.
Active investing can be a successful strategy. However, I’m in the passive investing camp simply because I prefer to put my faith in an index tracker fund and passively invest a fixed sum each month.
Due to recent falls in the stock market, my portfolio is down roughly 5%. It isn’t any steeper as my portfolio consists of a mix of equities and bonds. However, my bonds haven’t performed well in 2022 either. This is due to rising yields, which I blame on investors remaining fearful about rising inflation.
[middle_pitch]
Why am I not worried about recent stock market falls?
Due to my passive investing style, whenever the stock market falls, my monthly investment picks up a greater number of stocks. When stocks rise, my investment buys fewer stocks.
I’m happy with this as I know that, by nature, the stock market is likely to both rise and fall.
I also have a long-term investing horizon. This, I hope, will remove any temptation I might have to panic sell should the stock market crash in future. By taking a long-term approach, I also put my faith in the stock market outperforming savings rates over the long term.
So, with my investing style, recent falls and the current volatility in the stock market don’t particularly concern me. In other words, I’m sticking to my passive strategy regardless of how the stock market performs next week, next month or even next year.
How can you passively invest?
There’s no one-size-fits-all investing strategy. If you enjoy picking individual stocks and doing your own research, then you may wish to undertake an active investing strategy.
However, if like me you’re less confident you can beat typical stock market returns, then a passive investing approach may be your best option.
To passively invest you’ll need access to an investing platform. Hargreaves Lansdown is a popular choice due to its low fees, but also take a look at The Motley Fool’s top-rated share dealing accounts for more options.
Once you’ve opened an account, you can then buy your chosen index tracker fund. Do this, and you may then wish to set up a regular, fixed payment from your bank account. This is a textbook example of passive investing, especially if you take a long-term approach.
As with any investing – active or passive – be aware that the value of your portfolio can rise and fall. If you’re new to investing, look at the investing basics to put yourself on the right path.
