Get-Rich-Quick Investing Dominated 2021 - Will 2022 Follow Suit?

If ever there was a year…in a series of years…that offered puzzling choices to investors, it was 2021. It was a financially-lucrative year that appealed to the full spectrum of investors, with even the most conservative of us tempted by the fear of missing out (FOMO) on big investment opportunities. NOTE: Since I’m not a credentialed financial advisor, the answers (observations) I give are strictly my opinion.

Tempting Returns

2021 was probably thrilling for traders and plungers (daring investors who make decisions based on emotion) because of the large number of get-rich-quick investment opportunities involving:

• Non-fungible tokens (NFTs), which are the latest craze in the cryptocurrency world. According to Blockchain Council, NFTs are cryptographic objects on the blockchain with special identification codes and metadata that differentiate them from one another. Unlike bitcoin, they cannot be used as a means of exchange since they are not interchangeable - they can’t be replaced with something else

• Meme stocks like GameStop, AMC Entertainment, and Virgin Galactic. These are the shares of a company that have gained a cult-like following online and through social media platforms.

• Overvalued EV stocks like Rivian and Tesla, and those many fungible cryptocurrencies, like bitcoin.

On the opposite end of the risk spectrum, conservative investors like me who focus on more mundane U.S. stock opportunities like the S&P 500 (a stock index consisting of the 500 largest companies in the U.S.), experienced another in a series of rather mind-boggling years, yield-wise. It's the stuff that I preach about…saving money and investing it in an unmanaged index fund around which you can build an investment portfolio according to the PDQ Principles (Patience, Diversification and Quality).

Full-Scale FOMO

Without question, FOMO came into play big time in 2021. Huge gains by the memes, dramatic swings by the cryptos, and the sudden allure of a new NFT rage grabbed a lot of attention. Fair enough. Big money was made (and lost) in this “I want to become a millionaire overnight” fairyland.

But remember that in 2020, 2020 and 2019 - in fact, over the past five years - you could do quite well simply by sticking to simple investment techniques and buying into funds with low administrative costs. Including reinvested dividends, the S&P 500 index yielded about 28.71% in 2021. And its most recent three-year and five-year annual average yields were 26.07% and 18.47%, respectively. Wow!

Chances are the record highs experienced in 2021 won’t happen again in 2022. But if you stick to a a highly diversified, low-cost, conservative approach to investing, over time you will see more mind-blowing yields. I’d be as surprised as most worrywarts if the next five-year S&P 500 average yield approached that of the past five years, but you never know.

Dare to be Average

My point is simply this. The get-rich-quick game is very likely a losing game, especially when you play it for a long time. Win big today, lose big tomorrow can be a very unproductive yield curve and a very unsatisfying journey on the road to retirement.

"Daring to be average” - being happy with the market rate of return that index investing brings you - can been very satisfying. Yes, the market goes up and down, but over the long haul, a simple, low-cost, highly diversified, and patient approach to investing can have a very rewarding impact on your net worth.

And, by the way, the amazing power of compounding is a wonderful thing, particularly if you live a long time. So stay healthy.