Market update: Learnings from 2021
Covid, inflation, market recoveries around the world, and the top principles! Let's dive into the last market update of 2021!
The top takeaways of everything that happened in financial markets are quite straight-forward:
- Stick with your plan, stir away from trends
- Keep your money invested for at least 5-10 years (preferably longer!)
- Don’t speculate – spread your investments broadly
Yes, those key learnings repeat themselves over and over – it’s a good thing because if you follow those in the long run you have your investments set up optimally for long-term growth.
Let’s look at the markets and important events in 2021 and how they influence the top takeaways.
Bitcoin showed its teeth
Bitcoin has proven its “volatility” throughout the year (that its price can go up and down in extreme steps) real. The 2021 Bitcoin chart looks a little crazy and less like an investment product that gives confidence to new investors.
There is no problem in speculating and being part of the crypto community – if you don’t bet a big portion of your savings.
Make sure you know which part of your savings you
- plan to grow over the long-term
- are okay to potentially lose in the worst case
Stick to your plan – stir away from trends
Only use a small portion of your savings to invest in trends. Don’t throw your plan out the window in order to move investments around.
Well, hello inflation
Throughout the whole year inflation rates have been rising and are now approaching levels that haven’t been seen in years. The jury is still out there on whether this is a lasting trend. But Corona keeps on affecting production facilities and supply chains. Even energy prices have been rising.
All in all, it might also lead to gradual increases in interest rates.
Markets developed in different ways throughout the year
Selma invests your money via Exchange Traded Fund (ETFs).
Some of your money is invested in the USA, some in Europe, and some also in Emerging Markets. The Emerging Markets ETF also includes some big tech companies from China.
The big regulatory crackdown on bigger tech companies like Alibaba by the Chinese government has obviously impacted the market. This is why the whole Emerging Markets sector had quite a difficult year.
Other ETFs (like the ones covering USA and Switzerland) that Selma also includes in her plans have performed better. 🇺🇸🇨🇭
The current valuation of emerging markets
Currently, according to Selma’s long-term measurements of over- and undervaluations of complete markets, the emerging markets are very undervalued.
This means that Selma includes slightly more emerging markets in her investment mixes. Selma’s algorithm and financial experts build on the concept that valuations will balance out in the long run and that this overweight on currently lower-valued investments will pay off.
Omnicron on the rise
With the Covid mutation, Omnicron, spreading across the world investors start to panic again. Though what did 2020 already teach us? Markets actually recover rather quickly from panic and crises. These patterns teach us to stick to our plans, keep money invested, and make sure we don’t speculate. Read more about investing during crises.
Keep your money invested at least 5-10 years
In order for your mix of investments to grow consistently and take advantage of compound interest, keeping your money invested is important. Only invest money you can leave invested – this way you don’t have to withdraw money in case markets are unstable and move up and down a lot.
Fact check time: what does Selma do?
First and foremost Selma makes sure that the overall risk level of your long-term investment plan fits your profile. That’s why you should always keep your investor profile up-to-date.
Selma also makes sure to keep your mix of investments and its value within a certain bandwidth. For example, if Swiss Stocks perform well during a certain period, your overall investments at Selma might not gain as much. On the other hand, when some markets go down, your overall investments at Selma will be more stable.
So what’s the deal? How do fewer ups and downs help me?
Selma’s investment mix will achieve similar performance to “one riskier kind of stock” with fewer crazy ups and downs in the long run.
Risk translates into the intensity of ups and downs in the short term – imagine you’d have to withdraw money shortly after starting to invest due to personal reasons. Would you be happy to take money out when you just lost 40% after two months? Even if you were happy your investments grew +15% within the first two days?
Our advice: "Try to ignore short-term performance. What counts is how much money you have in a few years or decades – and there are many ups and downs on the way there."
This chart shows what goal Selma follows: to make sure your plan and its ups and downs stay within a certain bandwidth. The risk level should fit you and make sure your money grows over time, but with less frenzy. There will always be risks involved in investing, but there are ways to manage them. 🌻
You keep your money growing within a certain bandwidth by
- spreading your risk around the world
- making sure you are set up with a long-term plan
- measuring valuations to make sure you stick to your plan and won’t speculate
Precious metals as protectors 🛡
Selma uses a share of gold in her investment plans for you to stay a little bit more careful in certain situations.
When all the markets…
- grow atypically fast
- and their valuations inflate
…Selma doesn’t follow the hype with your money – Selma takes the foot off the gas pedal and keeps a share of precious metals in the mix to protect you against potential price setbacks.
Once investors start selling products in formerly fast-growing markets again, prices become cheaper and Selma sells precious metals to buy more “growth” investments like stocks and real estate.
What does 2022 bring?
First, and foremost: you will get to read market updates more regularly again! You will find them in your inbox or on our blog every three months.
What would you like to learn?
We are working on more content and our blog – for you! Our blog will also provide a few more options and we’d like to make sure we’re researching, crafting, and publishing the right types of content.
Carina makes technology understandable. As the former marketing lead of a complex software product, she joined Selma to help explain finance in a more human way. Winter being her favorite season, she loves ❄️ and 🎿LinkedIn