So far, 2022 has been a pretty rough year for investors. In January, stocks flirted with correction territory and hit lows we haven't seen since March of 2020.
February, meanwhile, has been a volatile month so far in its own right. And at this point, a lot of investors are antsy about what the stock market has in store.
To be clear, though, 2022 has not produced a full-fledged stock market crash — at least not so far. But is that something investors need to gear up for?
Will stock values tank in 2022?
One of the toughest aspects of being an investor is dealing with the unpredictable nature of the stock market. When the omicron surge erupted in December, many investors assumed stock values would plummet. But that didn't happen. Instead, stock values started to tank, just as omicron numbers were starting to improve.
Because stock market crashes can be unpredictable, we can't say with any certainty whether or not we're headed for an intense, prolonged downturn in 2022. But one thing we can say is that it's always a good idea to be prepared for that possibility.
Gearing up for a stock market crash
Whether stocks crash fully later on in 2022 or at some other point in the future, there are a few basic steps every investor should take to prepare. First, secure your emergency fund. Make sure you have enough money in the bank to cover at least three months' worth of living costs so that if a need for cash arises, you won't have to liquidate investments when they're down and permanently lock in losses.
Next, make sure your assets are allocated appropriately, given your age. If you're decades away from retirement, feel free to go heavy on stocks. If the market crashes big time, your portfolio has many years to recover. But if you're nearing retirement, consider investing more conservatively. That could mean limiting your stock holdings to around 50% of your total assets.
Finally, make sure your portfolio is diversified. If you load up too heavily on stocks within a given segment that takes a notable hit during a market downturn, your portfolio could end up impacted in a very big way.
You can diversify by making sure you own a few dozen stocks across a range of market segments. Or to simplify the process even more, load up on broad market exchange-traded funds (ETFs). The upside here is that you can do minimal research, while effectively setting yourself up to own many stocks with a single investment.
We don't know what the rest of 2022 has in store for the stock market. Portfolio values could climb across the board or plunge before the year wraps up.
In light of that unpredictability, the best thing you can do as an investor is be perpetually prepared — and remind yourself that while stock market crashes can be upsetting and stressful, they can also be short-lived. So even if things do take a notable turn for the worse this year, it doesn't mean that your long-term financial goals are doomed.
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