Things You Can Invest In During The Financial Crisis
Markets are volatile and earnings are likely to sink. Nobody knows when the economy will return to normal. How can we approach investing during COVID-19? And what can we invest in during the financial crisis?
When the market is doing well at its high, we tend to take it for granted and forget that what rises can also fall. But the matter of the fact is that economic slowdowns are usually cyclical - meaning that it is only a matter of time before a recession takes place. It is therefore wise to not get complacent and instead be prepared for it.
The recent downturn in the markets has emphasized the fact that investments should not be aimed at short term gains as a primary strategy, but rather at growth in value over the longer run.
In this article, we are exploring some of the investment tools that are able to perform even during a financial crisis.
Your first instinct might be to give up on stocks during the financial crisis, but completely abandoning it is not the best method. This is because there will always remain a handful of sectors that continue to thrive despite the recession and provide investors with steady returns. If you wish to partly use stocks to cushion your finances during the financial crisis, sectors that would be wise to consider are healthcare, utilities and consumer goods sectors. This is because the products of such sectors still have to be consumed regardless of the economy’s state and thus tend to thrive in the midst of economic busts.
If you’re interested in generating passive income, dividend stocks would be an appropriate investment. For beginners who might not know where to start, consider looking into dividend aristocrats - companies which have increased their dividend payouts for at least 25 consecutive years. According to experts, it is advisable to look for companies with low debt-to-equity ratios and strong balance sheets.
An Exchange-Traded Fund (ETF) is made up of a cumulation of securities (like stocks for example) that often tracks an underlying index, though the investment can be done through various strategies and in any number of industry sectors. ETFs share many similarities with mutual funds but are listed on exchanges. ETF also shares trades throughout the day as would ordinary stocks.
During market downturns, ETFs offer abundant opportunities for successful investments. Nevertheless, thorough planning will help mitigate risk while maximizing profit potential.
Think of mutual funds like a pool filled with money from many investors. This collective money is then invested in securities like bonds, short-term debt and stocks. A mutual fund’s combined holdings are known as its portfolio.
There are always certain indicators that reflect the market will recover from its slump, so don’t let an economic downturn discourage you from investing in mutual funds. Continue to wisely build up a healthy portfolio with maximum diversification and these investments will have their chance to perform when the time is right.
The Advantages and Strategies of Mutual Funds Diversification Mutual funds allow individual investors access to a wider variety of investments than they would usually be able to afford. This hence offers diversification. Asset diversification is one golden rule investors should abide by, whether you are investing big or small. This is done through investments of varying types and buying a mixture of stocks from different industries which reduces the risk to your assets. Buying both industrial and retail stocks, for instance, reduces the impact on your portfolio in the event of a poor quarter in either one of those sectors. It would also be a good idea to invest in bonds which can protect you from a steep fall in stocks.
Dollar Cost Averaging A Systematic Investment Plan (SIP) can be done with mutual funds. A long investment horizon of at least 5-6 years is required if you wish to realize the most out of your mutual funds. A fluctuating market scenario is actually more conducive for SIP investments to thrive. You will be able to purchase more units of the fund at a lower price when the market hits lows and results in a decline in the Net Asset Value (NAV) of funds. When the market slowly picks up again, you will earn more returns from the value of your SIP investments since you hold more units now.
Auto Rebalancing To stay within the portfolio’s risk parameters and objectives, Auto Rebalancing is needed. This provides value to those of us who want to ensure our investments remain on track despite our busy lives.
Precious metals like gold or silver are considered commodities and tend to do well in the midst of market slowdowns. However, we need to keep in mind that the prices of these commodities would also usually go up along with increased demand for these during recessions. Commodities tend to provide returns that vary from other bonds or stocks. With this in mind, strive to build a portfolio with assets that don’t move together and this will help you be in better control during economic slowdowns.
If you’re concerned about stability, savings programs generally guarantee returns, unlike with investing in the stock market where things are unpredictable. These returns are guaranteed as long you are able to retain the policy till maturity and pay all committed premiums.
The best investment you can make, is an investment on yourself. - Warren Buffett
Set goals for yourself to work towards. With goals in place, you’ll have the motivation to work towards it as long as you are committed to it. During this circuit breaker period, many of us won’t experience much physical movement anymore as there is now minimal traveling for work even just for a day out. An example of a goal to set for yourself during this period would be to exercise at least x amount (whichever amount you think works for you) of times a week. Since we will now have a lot of time to ourselves, we can also set goals to learn something new. Even something as simple as learning basic origami is a great goal to work towards! Remember this when setting goals: Your goals should be SMART goals -Specific, Measurable, Attainable, Relevant and Timely.
During this circuit breaker, there are several online workshops, classes and seminars that can impart valuable skills and sometimes even allow you to earn micro credentials. You can check out some interesting online events at this link: https://www.eventbrite.sg/d/online/events/
The more you learn, the more you earn.
Grab a book, gain some knowledge, learn some skills.
It is an understatement that the markets are volatile at the moment.
Instead of focusing on the next few quarter results, let us keep our eyes on long-term results and which companies can survive the current economic standstill.
For more objective opinions and evaluations on your investments, book us now for an informative discussion.