With the worldwide economy coming to a screeching halt from the COVID19 pandemic many investors have seen major red in their portfolios.
These times are never comfortable but when it comes to investing you should never use emotions and panic. Instead, there could be a major opportunity to review your portfolio, weather the storm and possibly even make more money from this. This does not necessarily mean that you have to make a big overhaul of your investment portfolios, however, you should probably make sensible and incremental changes to add some strength to it.
With the unique and unprecedented situation of this global health pandemic, it is expected that the economy will bounce back to the level that it once was and even stronger as long as the health issue is solved. That could be from anywhere one year to three years from now but in the meantime your investments need to weather the storm.
Here are some more tips for properly investing in a tough economy.
The number one rule to investing should be to diversity – meaning investing in different asset classes. This is very important because in a poor economy not every industry does badly in every single country.
A well-diversified portfolio will mean that its various elements will perform differently at different times in different countries. For example, if you had a big chunk of pharmaceutical research companies and safety product manufacturers you are probably doing very well in your portfolio compared to someone who had companies from the tourism and travel industry. However, the goal should not be to put all your eggs in one basket by going all-in on pharmaceutical companies because the risk is high that they could suffer a downturn after the pandemic scare.
Look Beyond The Economic Data
All news that is released always tends to be reactive and negative towards the market trends. Big panicky headlines sell, thus there is no need to panic and pay attention to the news or people who have their agenda.
ou should do your readings and research and come up with a conclusion that is not affected by negative outside sources. Analyzing on your own has become much easier with powerful technical analysis charting software. The experts from Trendspider provide more information on this topic. These types of softwares can combine artificial intelligence and automation technology on an intuitive UI to help investors establish trends in the market.
At the start of a slowdown trends will continue to appear positive, sometimes contradicting your actual experiences of the market because old numbers remain in the system waiting for processing. However, intelligent charting softwares are able to capture this trend and accurately compare it with historical data to give a risk based approach in determining whether the slowdown will occur soon.
Similarly, once the economy starts to recover the trends and headlines you see will not be able to capture the recovery until the data gets processed. This delay could result in your portfolio not capturing investments at the right time and maximizing winnings.
Cash Is Not King
During a recession, it is very tempting to stop playing the stock market game and fully opt out because of the perceived safety from hoarding cash. This strategy is very risky because of a few things. Stock markets are more volatile during recessions, which means as quickly as they fall they can also recover at the same speed. This could mean that you would suffer the initial loss from selling on a downward trending market and also missing out from its recovery.
This could be a double loss for someone. But the most important reason that cash is not king during a recession is that the large number of loans given out from federal reserves to encourage economic activity, Keynesian economics, has the potential to devalue the currency, in other words, set in place inflation, meaning that the cash that you hoarded is not worth the same value as before. Therefore, cash is not risk-free especially during tough economic times. You would want to invest in intangible assets such as heavy metals, gold, and real estate with a long term holding outlook to survive any major inflation.
In summary, one must do their research during tough economic times and think long term instead of paying attention to the daily news and panicking. There is light at the end of the tunnel because the recession is not necessarily caused by any bad investments like the 2008 recession was but instead from a health pandemic.
Once the health pandemic is solved after a few years then everything should gradually go back to normal. However, that is not to say one should not assess their exposure to smaller companies that have been worse affected historically by recessions. In bad times a lot of small companies may end up going bankrupt and you could lose your whole investment. During recessions you must be invested in the food, pharmaceutical, utilities, and logistics industries. These are usually the ones that hold up better than other industries.