The “buy the dip” financial news networks teleprompter readers, and the 30-year-old portfolio managers that have never seen a market crash are getting pretty quiet these days. Market veterans and “hey boomer” professionals have seen this show before. Back in 1987, the Dow Jones industrial average plunged a stunning 22% in one day. The equivalent today would be a drop on the venerable index of almost 7,800 points.

During the period from 1929 to 1932, the stock market plummeted a remarkable 83%, and many lost everything they had. Much of that debacle was due in part to frenzy-driven novices buying stocks on margin. Sound familiar? That late 1920s stock mania and crash ostensibly started the Great Depression, which really only ended after the United States entered World War II in 1941.

In the years from 2007 to 2009, during the height of the mortgage and real estate collapse, one that brought us dangerously close to yet another depression, the market dropped a huge 57%. When stocks finally bottomed at an ominous intraday low of 666 on the S&P 500 on March 9 of 2009, that put in the floor for the longest bull market in history. That bull market may be coming to an end, and perhaps doing so fast.

So where do we stand now? Very possibly on the precipice of a very large potential decline. Why? Because the Federal Reserve’s benchmark interest rate, known as the federal funds rate, is now expected to rise this year as many as four times. Toss in the ongoing two-year fight with COVID-19 and its multiple variants, supply chain issues and the biggest jump in inflation in 40 years all weighing on investor sentiment, and we could be in for some difficult times in 2022.

At 24/7 Wall St., we feel that there are some especially important items for our investing readers to consider now. The six highlighted here make sense for those looking to take some proactive portfolio moves in front of what could be a far more difficult 2022.

1. Do not try to catch the proverbial falling knife if the stock market sells off hyper-fast. Instead, it may make sense to match current losses against gains, even if they are short term in nature to help build up a cash supply. The proverbial dry powder may come in handy down the road. The “buy the dip” crowd has been winning for years, but that streak may be over, at least for the time being.
2. Immediately, if at all possible, close out any positions on margin. For individual investors to use margin loans to buy more stock is a bad plan when times are good, especially when those margin positions are high-volatility momentum stocks.
3. As we have recommended for years at 24/7 Wall St., a position in gold and other commodities helps to mitigate the downside. As we noted recently, the precious metal could be ready to rally in a big way.
4. Make sure that all the dividend-paying stocks (if the company offers a dividend reinvestment plan or DRIP) and mutual funds in personal and retirement accounts are coded to reinvest all capital gains and dividends. This allows you to buy more shares when prices are hit hard. Many stocks and funds pay dividends on a calendar quarterly basis.
5. If you have the good fortune to come into a windfall, like an inheritance or something similar, think about real estate. With mortgage rates still near historical lows, owning cash-generating rental property is an idea that still makes sense now, despite the surge in real estate prices.
6. If you do indeed need to look for stock ideas, look at extremely conservative ones, those not affected as badly by even the worst case scenarios. In other words, seek companies that provide goods and services that are needed all the time, regardless of stock market gyrations.

By any and all measures, stocks are expensive, and the funny COVID-19 stimulus money and the Federal Reserve’s ocean of liquidity is going to run out and will be going away soon. The central bankers foolishly let this stimulus run on, and that combined with a ridiculous amount of government spending, is fanning the flames of a massive inflation problem, again the likes we have not seen since the early 1980s.

Stocks always have been the best investment idea. Look at any long-term chart for the major indexes and you will see a 45-degree angle. Now, that rise may have some major dips, like the 35% decline we saw in 2020 in a period of about six weeks, but overall, equities will always remain the best bet, especially quality companies that pay dependable dividends.

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