5 Tips for Investors After the Stock Market's Worst Year Since 2008

Wall Street ended 2022 on a low note. But experts say there are a few moves you can make now to ensure your portfolio is ready for 2023.

The S&P 500, an index commonly used as a benchmark for U.S. stocks, ended the year down 19.4%. It was the index's worst annual performance since 2008. Meanwhile, the Dow Jones Industrial Average tumbled 8.8% for the year and the tech-heavy Nasdaq Composite fell a whopping 33.1%.

Stocks kicked off 2022 near a record high. But amid decades-high inflation and the Federal Reserve's attempts to bring down those spiraling consumer prices with interest rate hikes, financial markets quickly began to struggle. Bonds fared poorly, with the Bloomberg US Treasury Index experiencing a record annual loss. Crypto markets felt the pain, too, exemplified by bitcoin dropping from around $47,000 per coin at the start of 2022 to around $17,000 per coin now.

After such a tumultuous year for the markets, many investors are likely feeling unsettled about how their investment portfolios will perform in 2023 — but experts say that's no reason to abandon your investing strategy.

"I know it is hard to hang in there," says Catherine Valega, owner and financial planner at Green Bee Advisory in Boston. "But hang in there you must."

There are several moves you can make to ensure you're starting off the new year on the right foot. Here's what experts say to doing consider now.

Check in on your investing goals

A big part of having a strong investment plan is aligning your portfolio with your goals, whether that's a comfortable retirement in several decades or a big purchase in the next few years.

While experts say that investing in the financial markets is one of the best ways to build wealth over the long term, you want to make sure your money is accessible when you need it. The volatility of the markets in 2022 has shown us just how important it is to account for fluctuations and downturns.

Valega advises her clients to keep money for short-term goals, like a down payment within three years, in a high-yield savings account. But for those who have three to five years until their goal, she recommends adding stocks to the plan.

The best choice of investments will look different for each individual. But ensuring that you're choosing long-term investments for goals you have more time for and short-term investments for those you'll need money for in the next few years will help.

Make sure you have a diversified portfolio

Having a diversified portfolio is key to a strong investment plan. Diversification refers to investing in a wide variety of assets to mitigate risk. Depending on your financial situation, goals and time horizon, you'll want to consider stocks, bonds and cash. (A portfolio of 60% stocks and 40% bonds, for example, is a common strategy.)

But that means diversifying within those asset classes as well. Having 40% of your portfolio in stocks that are all tech stocks, for example, is not diversified at all, says Nicholas Bunio, a certified financial planner at Retirement Wealth in Berwyn, Pennsylvania. Instead, financial advisors tend to recommend that a stock portfolio consists of stocks in companies of various sizes and sectors, and has both domestic and international stocks.

A diversified portfolio can help ensure that as market volatility continues in 2023, as experts are saying it's likely to do, you don't have all your eggs in one basket. And Bunio says investors shouldn't double down — as in, see a huge loss in an area of their portfolio like tech stocks and then invest all in tech hoping to double their money.

"That may or may not happen," he says, and there's a good chance you'll lose money.

Continue investing in stocks

Checking your investment accounts now may be anxiety-inducing, but that doesn't mean you should stop investing. In fact, it's important to stick to your plan and keep investing even when stocks are down.

That's because you can't time the market, and if you stop investing now, you risk missing out on the recovery. As J.P. Morgan Asset Management's 2022 "Guide to Retirement" report explains, the stock market's best days tend to happen close to its worst days: Between January 1, 2002, and December 31, 2021, seven of the S&P 500's best days occurred within just two weeks of the index's 10 worst days.

Plus, down markets means financial assets like stocks are on sale.

"The market being down actually makes January 2023 a better time to invest than January 2022," says Jeremy Keil, a financial advisor at Keil Financial Partners in New Berlin, Wisconsin.

Don't make major changes to your portfolio

Seeing news that 2022 was the worst year for stocks since 2008 is scary, but it doesn't mean you should make big changes to your investing plan.

"I don't recommend changing anything about your investing strategy only because of what the market has already done," says Kevin Burkle, a financial advisor at HCP Wealth Planning in Jacksonville, Florida. "We can't control the short-term returns of the markets."

However, investors should focus on what they can control, like making sure the level of risk they have in each account is aligned with how and when they plan to actually use the money, Burkle adds.

Remember market downturns don't last forever

Market downturns are scary, but as history has shown us, when prices turn around, investors can come out winning.

Back-to-back down years for the S&P 500 are quite rare, according to Ryan Detrick, chief market strategist at Carson Group.

"If you go all the way back to 1950, the only times that stocks fell in back-to-back years were during the vicious recession of 1973/1974 and then three years in a row during the tech bubble implosion of the early 2000s," Detrick wrote in a recent blog post, adding that "the odds could favor a snapback in 2023."

So while checking in on your portfolio to make sure it aligns with your goals and time horizon is always a good idea, the best course of action is likely to keep calm and stick to your plan.

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