Survey: 6 things individual investors should avoid in 2022, according to top market experts

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Brian Beers

Published on December 22, 2021 | 5 min read

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In a new Bankrate survey, a group of top stock market experts revealed the investments or practices they recommend should be avoided to keep growing your wealth in 2022 and beyond. Experts pointed to cryptocurrency as one area to beware, but also some bonds and even some growth stocks.

We asked survey respondents: “If there’s one thing you’d advise individual or retail investors to avoid in the coming year, what would it be?” Their answers ran the gamut.

Forecasts and analysis:

This article is one in a series discussing the results of Bankrate’s Market Mavens fourth-quarter survey:

Top market strategists see stocks rising nearly 8 percent in 2022
Experts forecast strong rise in Treasury yields over next year
Stock market correction is overdue and likely imminent, say 70 percent of top analysts
6 things individual investors should avoid in 2022, according to top market experts

What the experts say investors would be best off avoiding in 2022

The survey’s market watchers provided a range of things to steer clear of, including some of the hottest investments around right now.

1. Cryptocurrency

Cryptocurrency such as Bitcoin or Ethereum seems to be as hot as any investment in recent memory, but two of our respondents cited it as something to avoid completely. Both Marilyn Cohen, CEO, Envision Capital Management, and Chuck Carlson, CFA, CEO, Horizon Investment Services, say it shouldn’t be on investors’ buying radar at all.

It’s important for investors and traders to understand that most cryptocurrency is not backed by the assets or cash flow of any underlying company. In this regard, it stands in sharp contrast to investments in stocks, where a company’s long-term performance drives the return.

However, with cryptocurrency the price is driven by bringing more speculators on board, or what’s called the greater fool theory of investing. It’s one reason that investing legend Warren Buffett refuses to touch the stuff and cautions you against doing so, too.

Here’s how stocks stack up to cryptocurrency and what you need to know about each.

2. Long-term bonds

Clark A. Kendall, president and CEO, Kendall Capital Management, warns investors about long-term bonds. Why long-term bonds and not all bonds?

Bond prices move inversely to the direction of interest rates. If interest rates rise, bond prices fall. If rates fall, bond prices rise. But this effect is even more pronounced with long-term bonds. The longer term the bond, the more it’s affected by changes in interest rates.

With the Federal Reserve slowing its purchase of bonds and poised to raise interest rates in 2022, many market watchers expect a much less favorable climate for long-term bonds. Bonds are paying historically low interest rates, so long-term bonds that fall in price could trap investors for years in a low-yield investment.

3. Growth stocks at any price

What’s the must-avoid investment for Patrick J. O’Hare, Briefing.com chief market analyst? Paying any price for growth stocks.

“That was the play in 2021, but with interest rates poised to go up in 2022, one should be looking to buy growth at a reasonable price,” O’Hare says.

As interest rates rise, many investors shift to value stocks, and higher-priced growth stocks tend to get punished. Many formerly high-flying and high-growth software as a service (SaaS) stocks have already fallen sharply off their recent peaks in anticipation of this shift.

4. Emotional decision-making

And whether you’re buying or selling, several of the experts surveyed by Bankrate pointed out the pitfalls of investing emotionally.

The key thing to avoid for Michael K. Farr, CEO, Farr, Miller & Washington, is “making short-term, emotional investment decisions.” For Kenneth Chavis IV, CFP, senior wealth manager, LourdMurray, it’s “panic selling during episodes of pandemic-related volatility.”

Either way you slice it, emotional decision-making is the kind of thing that gets you to sell a winning long-term investment because you’re worried that it will fall this year. You’re so worried about losing money that you miss the long-term opportunity.

Sam Stovall, chief investment strategist, CFRA Research, also gestures to the trap of letting investment decisions be ruled by emotion, then points out that 2022 could be especially volatile.

“The second year of the presidential cycle is the most volatile of all four (40 percent above the average of the other three), with Q2 and Q3 having standard deviations 33 percent and 80 percent above the average for the other 14 quarters,” Stovall says.

Joseph Kalish, chief global macro strategist, Ned Davis Research seems to agree, advising that “markets should be more volatile, creating more opportunities.”

Use that volatility to your advantage and steer clear of the emotional decisions.

5. Technology stocks

Given the strong run of tech stocks over the last decade, technology might not be the most obvious candidate to beware of. But many companies have debuted looking to take advantage of investor’s indiscriminate demand for tech stocks without yet being able to deliver the goods.

“Never fall in love with technology,” says Kim Forrest, chief investment officer/founder, Bokeh Capital Partners. “Look at the financial incentives that drive the adoption of a technology.”

Electric-vehicle stocks are a prime example here. Many firms are looking to piggyback off the enthusiasm that has propelled Tesla to the stratosphere despite a less developed business or in some cases a business that has yet to deliver any meaningful revenue at all.

With interest rates poised to rise in 2022, “growthy” tech stocks might not be quite the darlings that they usually are, but the right ones could still perform well, especially over the long term.

6. Emerging market stocks

You’ll also want to be careful of stocks in emerging markets, says Dec Mullarkey, managing director, SLC Management. These markets often have less robust governance and economic guardrails.

Mullarkey expects some of these markets will prove problematic for investors.

“Large segments of emerging markets will struggle with high inflation and normalizing activity,” he says. “Latin America, in particular, will continue to have an unsettled political backdrop in many of its major economies.”

Those looking to invest in emerging markets may want to carefully choose their spots to avoid a disruptive political or economic situation.

Methodology

Bankrate’s fourth-quarter 2021 survey of stock market professionals was conducted from Dec. 1-9 via an online poll. Survey requests were emailed to potential respondents nationwide, and responses were submitted voluntarily via a website. Responding were: Clark A. Kendall, president and CEO, Kendall Capital Management; Dec Mullarkey, managing director, SLC Management; Patrick J. O’Hare, Briefing.com chief market analyst; Joseph Kalish, chief global macro strategist, Ned Davis Research; Sam Stovall, chief investment strategist, CFRA Research; Marilyn Cohen, CEO, Envision Capital Management; Chuck Carlson, CFA, CEO, Horizon Investment Services; Kim Forrest, chief investment officer/founder, Bokeh Capital Partners; Michael K. Farr, CEO, Farr, Miller & Washington; Kenneth Chavis IV, CFP, senior wealth manager, LourdMurray.

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.