THE S&P 500’S RETURN so far in 2022, when compared to the same year-to-date stretch for previous years, ranks as the fourth worst since 1928. One result: Stocks look quite cheap. The market’s price-to-earnings (P/E) multiple has retreated as share prices have fallen while corporate earnings have continued to grow.
One chart in particular caught my eye last week. Each month, I peruse J.P. Morgan Asset Management’s Guide to the Markets. There was a graph that split the S&P 500 into its top 10 holdings and the index’s remaining 490 components. The P/E ratio for the top 10 is 24.7 and just 14.6 for the rest. Most of the S&P 500 is now priced below its historical average valuation.
It’s a reminder that, after a summer of volatility, it’s a great time to put money to work in stocks. Year-end is approaching, so it’s important to top off your 401(k) and make your full annual IRA contribution. If you can’t hit the $20,500 annual 401(k) cap ($27,000 for those age 50 and older), be sure to contribute at least enough to capture your employer’s full match.
Also don’t forget to invest money in your health savings account (HSA). While many people leave their HSA sitting in cash and then use it for routine health-related expenses, a smarter move is to invest in low-cost index funds. Use your checking account to cover today’s health care costs and leave your HSA to compound. Money in an HSA grows tax-deferred and can be withdrawn tax-free at any time for qualifying expenses. Just be sure to save your medical receipts, which you can then use years later to shelter your HSA withdrawals from taxes.
What if you’ve been neglecting your 2022 retirement account contributions? You’ve lucked out. How so? Thanks to the stock market swoon of recent weeks, today’s prices aren’t much above their mid-June lows.