Knowing how to build a balanced portfolio is as important as or more important than the choice of assets. In times of crisis, with high volatility and companies experiencing difficulties, it is essential to know how to manage the risk of your portfolio. And, the current economic crisis is perhaps one of the greatest financial crises of modern times and that many of us have not yet seen the hardest part of this situation.
The crisis, in the real world, will not be fleeting. And this can affect companies that have shares or that issue debt, in addition to changing the entire forecast of unemployment, GDP, etc. Thus, you need to understand very well the role of each asset class to make investments in which, if everything goes wrong, you lose little; but if it works, you earn a lot. It is necessary to seek this asymmetry in your favor.
Remember, an economic crisis or recession does not mean that all investments should be paralyzed, but the investors should turn to see the safest options and learn some strategies before investing in these uncertain times.
So, here are some strategies:
Understand the current situation
Before leaving in search of opportunities, the first step is to understand your situation and whether you can afford to invest or speculate. There is no point in wanting to go on the stock exchange and use all your money to buy all the shares you see ahead if you don’t know if you will have income in the next 3 months or not.
Covid-19 has got severe consequences all over the world. Everything we were used to has changed; after all, the scenario is entirely new and suggests an economic crisis and high unemployment, which was not imaginable about 3 months ago. So, one must be aware of this situation before investing anywhere.
Do not make sudden movements while investing
As tempting as it may be, and as the Stock Exchange appears to be on the liquidation, now is not the time to make major investments. Many experts are warning that the moment is still of great volatility and uncertainty. Therefore, the best investment in the crisis is to leave your money in a safe asset. But, if you still want to buy some assets on the stock exchange, choose the shares of solid companies and focus on the long term, as mentioned above.
Beware of stocks that grow only in crisis
During a crisis, there are always some industries that are greatly affected, and others that benefit. In the current case of pandemic and quarantines, the most negatively affected are tourism, and the most benefited are all the companies that help you stay at home. For example, e-commerce companies that allow you to buy from home, some delivery applications, or companies that help you work from homes like Zoom or Slack are doing well.
So, before you jump in and get into these stocks with everything you have, there are a few things to consider. First of all, look at how that stock has grown in price these days, it may be that due to the “hype” or the emotion of the moment everyone buys this stock and has already taken it to an overvalued price, making it a not very good company to invest in.
On the other hand, he considers that, although many people are testing the products of these companies, it does not mean that they trust it over time. It is likely that after the crisis, the number of sales of these companies will drop considerably when everything returns to normal, and this need will no longer exist. If you had already invested in these stocks before the crisis, enjoy the profits, and wait for the long term. But, if the market took you to inflated numbers, consider selling some stocks to have more cash to invest in other companies, and keep some assets for the long term.
Real-estate is a safe-bet in times of crisis
The properties have been characterized as being safe investments with good return prospects in the medium and long term (at least 5 years). It is difficult for a property to lose its value. Also, in times of crisis prices, tend to drop, which means you can buy a better property and sell it at a high profit when prices rise again. “In the meantime, you can rent it out and generate reliable income during the intervening period. Properties in the middle segment are the ideal ones to invest in at the moment, as potential residents will be looking for rental options,”explains Pablo Guzzo, CEO of the Altius Group developer.
Currently, the interest rates of mortgage loans are at low levels, so if you do not want to lose liquidity, you can finance part of this investment with cheap financing. And, not only that, part of the interest you pay for your mortgage is deductibles.
To conclude, the expert emphasizes that getting advice and being active in the search for opportunities is the key.
Likewise, do not take the first opportunity that appears in the way of investments under this situation, but be cautious when making decisions, do not concentrate them in a single moment, or invest in a single asset. And, be judicious in following a strategy, which also corresponds to a medium-term investment objective.