In the past years, investors have been plagued with incredible uncertainty. We take a dive into different investing methods to use in these trying times.
In the past years, investors have been plagued with incredible uncertainty. War, plague, and economic meltdown are all topics dominating the headlines.
Uncertainty and market corrections will test the nerves of many investors. After all, watching your portfolio go down a lot can be hard to stomach. The past few months have shown plenty of tests, with Bitcoin correcting as much as 75%. Even stock investors were hit hard, as the S&P 500 took a 25% haircut as well.
There are a few golden principles to remember during these uncertain times. First, it is okay to feel emotions and anxieties when the market feels unpredictable. However, you must keep your emotions in check when making investment decisions. Don’t let fear or stress shake you out of a solid investment.
Another key principle to remember is the benefit of diversification. A diversified portfolio will react less violently to market movements and go up more consistently over the long term; the same long term you should be focussing on in times like these. It is impossible to predict what will happen in the next week, but you can be more confident that prices will be higher five or ten years from now.
Finally, it is crucial to manage your risks. Whether you use a stop loss, manual invalidation or only invest what you can afford to lose, you must have a predetermined approach to risk. There is no set in stone approach here, it depends on your personal preferences. Investing in uncertain times is more about surviving than about quick profits.
Let’s dive into a few approaches to make it through the next months in one piece.
Zoom Out – Take a Longer Horizon
Uncertain times never last forever. Even market-wide corrections come to an end. While it may be tempting to sell out of your positions, it is important to look at the future rather than the present. The market corrections may present an opportunity.
Rather than looking to exit your positions, uncertain times may be a great moment to look for investments to add to your portfolio. By staying invested, you are in a great position to make money in the years to come. Generally, a good approach is to get rid of investments that look bad even on the longer run and replace them with investments you expect to bear better fruits. For example, you might sell your LUNA for BNB, or your Snapchat stock for Apple.
In line with the longer horizon, you might also consider taking a longer time to buy in to the market. Don’t worry about buying the exact bottom, just dollar-cost average into the assets you want to buy. This way, you will slowly increase your exposure over time, while decreasing your worries!
Of course, you should do your proper research before buying into any market.
Zoom in – Trade Intraday
After you have put your money in long-term investments, you will need to minimize the amount of attention you pay to the portfolio. Just leave it be and focus on other things. A great way to do this while also increasing your net worth is by trading the lower timeframes.
This may sound contradicting with the previous paragraphs, but zooming in is another great way of reducing uncertainty. Inflation-related volatility is mostly concentrated around scheduled news events like the CPI prints, so you can enjoy reasonably clean price action to scalp when the dust settles.
Safe Haven & Recession-Proof Investments
During times of market turmoil, look for investment opportunities that do well in any scenario. Depending on who you ask, this will lead you to different types of investments.
One investor will tell you to buy gold or silver as the perfect hedges against uncertainty. Other investors will tell you to buy treasury bills, hold cash or buy bonds. These types of investments are all backed by the government, and most people consider them to be risk free. However, with inflation sitting at around 8%, these investments will still cost you in buying power, as they generally yield a lower return than such inflation rates.
Seasoned crypto investors will tell you that this is the time to find under-the-radar gems and buy them at incredible discounts. Crypto winters allow you to buy tokens at “discounts” of up to 98%. Your job as an investor is to find the tokens that make it through the winter in one piece and join the ride to new all-time highs in the next cycle, and not be caught up in overly optimistic “discount” talk.
Finally, one might look to buy recession-proof stocks such as Walmart, Costco,or McDonalds. These companies have proven their worth in any environment, decade after decade. Investors look for companies that have demonstrated their ability to weather any economic storm and continue to grow even in the harshest of conditions. Many of these companies also pay a dividend regardless of the market conditions, which can make up for potential downturn across the board.
Recession-proof stocks may not generate triple-digit annual returns, but investing in uncertain times is more about survival than it is about making money.
Closing Thoughts
All in all, there are numerous ways to weather economic storms. You can choose to hold cash or go all in on household stocks. As usual, there is no one-size-fits-all approach to the markets, different investors will take different approaches and be successful. No matter your approach, it is important to do your due diligence, take your time and practice a risk management approach that suits your investment choices.
We wish you good luck navigating the months to come and look forward to simpler times once again.
Writer’s Disclaimer: This article is based on my limited knowledge and experience. It has been written for educational purposes. It should not be construed as advice in any shape or form.
