With the stock market swinging wildly as the year draws to a close, some investors are getting worried about a tumultuous 2022.
Relax, says Jeffrey Kleintop, chief global investment strategist at Charles Schwab.
Economic growth around the world will “remain above average” next year, he projects, and stocks should have a “favorable growth backdrop” even as central banks begin to tighten.
Historically, he says, global markets actually perform well when central banks lift rates from a low level.
“Fears of a gradual slowing of stimulus causing a major drop for the world’s stock markets seem unwarranted; the evidence suggests potential for a positive outcome,” he writes in a 2022 Global Outlook post.
To help investors capitalize on next year’s opportunities, Kleintop highlights a few investment “themes” to keep in mind. These three strategies are easy to implement, whether you’re an active investor or building a passive portfolio using your spare change.
International stocks
U.S. equities have delivered phenomenal returns in recent years. But looking ahead, Kleintop believes it could be time for foreign stocks to shine.
He argues that stock markets outside the U.S. are very economically sensitive, so when global growth is above average, international stocks tend to outperform.
It’s very easy for investors to get exposure to foreign stocks. For instance, Vanguard Total International Stock ETF (VXUS) tracks the performance of the FTSE Global All Cap ex U.S. Index. It follows a passively managed, index replication approach and currently holds 7,760 stocks.
If you just want exposure to emerging markets, consider ETFs like iShares MSCI Emerging Markets ETF (EEM). This fund tracks the MSCI Emerging Markets Index and holds 1,259 stocks.
Alternatively, if you’re a more passive investor, many robo-advisors will let you easily switch to a portfolio with a larger share of international stocks.
Green stocks
The market is warming to green stocks, and Kleintop suggests that theme could extend to next year.
“Alternative energy and other green stocks could benefit from U.S., European and Chinese climate and green energy legislation and spending, including electric vehicles, renewable power generation, eco-friendly infrastructure and home energy efficiency,” he wrote.
The bull run has already started.
To give you an idea, electric vehicle maker Tesla enjoyed a rally of over 2,900% over the past five years. Meanwhile, shares of NextEra Energy, the world’s largest generator of renewable energy from wind and solar, surged more than 200% during this period.
Of course, that means the hottest green stocks are not cheap; Tesla now trades at over $1,000 per share. But you can always get a smaller piece of the company using a popular app that allows you to buy fractions of shares with as much money as you are willing to spend.
If you’re using a robo-advisor, many offer sustainable portfolios with a high concentration of green stocks.
Buybacks
When a company buys back its shares, it reduces the number of shares outstanding, giving each remaining shareholder a larger ownership of the company.
In his post, Kleintop says buybacks have boosted share prices in 2021 and could continue to do so in 2022.
“In general, buybacks are seen by investors as a sign that a company has good cash flow and a strong balance sheet. These indicators are usually considered hallmarks of a high-quality company,” he says.
S&P 500 companies spent $198.8 billion on share repurchases in Q2 2021, up 11.6% over the first quarter and 124.3% year-over-year, according to S&P Global.
If you’re eager to capitalize, tech companies flush with cash continue to lead in buybacks. In Q2, S&P 500 companies with the highest total buybacks were Apple ($25.6 billion), Alphabet ($12.8 billion), Facebook ($8.4 billion), Oracle ($8.0 billion) and Microsoft ($7.2 billion).
Time to try something new in 2022?
Of course, to earn oversized returns, you don’t have to limit yourself to stocks.
If you want to invest in something that’s not subject to the ups and downs of the stock market, consider this overlooked option: fine art.
Contemporary artwork has outperformed the S&P 500 by a commanding 174% over the past 25 years, according to the Citi Global Art Market chart.
Investing in art by the likes of Banksy and Andy Warhol used to be an option only for the ultra rich. But with a new investing platform, you can invest in iconic artworks, too, just like Jeff Bezos and Bill Gates do.
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
