Let's face it, the S&P/ASX 200 Index (ASX: XJO) has had a pretty good run the past 20 months.
With just a few days remaining in 2021, it's up more than 10.6% for the year. Since the darkest days of the coronavirus panic in March 2020, the ASX 200 has surged more than 50%.
So maybe it's not the biggest surprise that experts are warning 2022 is not going to be as fruitful as the preceding couple of years.
2022 to be 'shaped by volatility'
One of those professionals is deVere Group chief Nigel Green, who warns portfolios will take a "hammer blow" in the new year unless proper preparation is undertaken.
"Headwinds… are likely to outnumber the tailwinds in 2022 as the world continues to readjust to the post-pandemic era."
Tribeca portfolio manager Jun Bei Liu told The Motley Fool that she expects next year to end with positive returns but will not match the dizzying heights of 2020 and 2021.
"Risky bets are unlikely to pay off."
She added that "volatility is going to dominate headlines" in the new year.
Green agreed, saying the next 12 months will be "shaped by volatility" and 3 major risks need to be mitigated by all investors.
"First is inflation. It's a risk that is a major concern for most investors around the world. Why? Because it kills returns by eroding the buying power."
The United Kingdom and New Zealand have already lifted cash rates this year, and the United States has earmarked an acceleration of its wind-down of stimulatory policies.
What will China do?
The second big risk is China.
"The country's economic growth is uncertain. Much of the recent slowdown has been fuelled by the wider impact of the collapse of huge property developers such as Evergrande," said Green.
"There are now serious worries that this could initiate a worrying credit crunch that would be disastrous for the world's second-largest economy, which would have global repercussions."
Liu reckons China will quickly bring in stimulus to maintain its growth rate, but other worries remain.
"Its border is likely to remain closed as it maintains a zero-COVID policy leading up to the People's Congress later in 2022."
Green is also anxious about the Chinese Communist Party's "state-sponsored attack on private capital".
"The regulatory attack on tutoring, and other sectors such as gaming and ride-sharing, appears to highlight the Chinese government's new thinking and its increasing push for control of private enterprise," he said.
"Investors will be required to take a leap of faith regarding China's political strategies."
The pandemic hasn't finished yet
The emergence of Delta and Omicron this year has taught markets that one can't predict what will happen with the coronavirus.
Liu, nevertheless, thinks economic recovery will continue in Australia.
"Domestic travel should return to normal by mid-year and international travel should recover meaningfully by later 2022."
A looming federal election will also have some stimulatory impact on select industries, according to Liu.
"We are likely to see more stimulus to consumers though not meaningful in comparison to the handout over the past few years."
Green is less certain about the economic recovery.
"Will it impact economies due to the introduction of new restrictions? Which sectors will be hit the hardest? How will it impact the workforce? How will already shaky supply chains be managed?" he said.
"These are questions that can directly impact investor returns but to which we still have no answers."
'Portfolios must reflect the future, not the past'
To mitigate these risks in 2022, Green suggested investors hold on for the long term and review the composition of their portfolios.
"It's essential that investors stay invested. As we know, history has shown us that markets tend to go up over the long term," he said.
"As the world moves ahead to a post-pandemic era, it's crucial that investors ensure their portfolios are suitably diversified across asset classes, sectors, currencies, and regions."
Liu also encouraged investors to be hands-on with their holdings over the coming year.
"2022 will see active investors perform well as they can cut through the noise and find hidden gems overlooked by the market."
Green reminded investors to always be mindful of one thing when adjusting their holdings.
"Investor portfolios must reflect the future, not the past."
