It's Not Diversification: How to Avoid the Biggest Mistakes in Volatile Markets

Investors expected that in 2022 the situation in the markets would be different from what happened before. But they did not immediately realize how dramatically everything had changed.

Most analysts assumed that the US Federal Reserve (Fed, acts as a central bank. -) in 2022 will make a number of changes to the discount rate. Perhaps in the beginning it was not about the five promotions that are being talked about now. Inflation has been on the rise, but now there is a much larger and more systemic increase in prices. People have shifted money from growth-focused technology stocks to value stocks that are considered undervalued. And now banks are forecasting slower growth in the coming months. All this is creating volatility not seen since the start of the covid-19 pandemic .

The NASDAQ Composite Index experienced its worst month in almost two years in January 2022, falling 9%. The sharp reversals of the market during the trading day have made it more difficult for retail traders to determine when to trade - over the past two years they have become accustomed to buying on price dips followed by rallies. Up until the end of January 2022, the level of trader confidence was quite high, and this fueled speculation in both the cryptocurrency market and the meme stock market. However, both have shown a downward trend in the past few months. Due to the uncertainty surrounding Ukraine, volatility indicators are well above the 12-month average.

“This is a new investment policy. Methods that have worked well in the last couple of years probably won't do well in the next two, says eToro Global Markets Strategist Ben Laidler. “Interest rates are rising, growth is slowing, profitability is declining, and volatility is rising. This is the new reality."