Investment decisions can seem easy when things are going well. As when stock prices are rising across the board, and there are plenty of opportunities to put money into start-ups and new technology that may turn out to be the next big thing.
But how do you invest wisely when the economy isn’t doing so well? Recession, wars and unexpected disasters like a pandemic can lead to a severe downturn on a national or international basis. Under such circumstances, how do you invest smartly and keep your money safe?
The first thing to remember is that there is always uncertainty. It’s just that sometimes there’s more uncertainty around.
Indeed, one might say that at least in a recession, you can be more certain of uncertainty. It should also be remembered that investment is all about uncertainty. It’s the fact that nobody knows for sure what an asset will be worth in the future, whether it will rise or fall, which makes it possible to make a profit by putting your money at risk.
A time of opportunity
Bearing all this in mind, we should see periods of economic uncertainty as an opportunity to make profits, rather than just a calamity to be ridden out. If we really wanted to play it safe, we would move all of our money out of equities and stocks and put it into recession-proof assets like precious metals and government bonds.
Moving some of your money out of equities into safer assets is certainly a good idea. But pulling out of the stock market entirely until the tide turns will mean that you miss opportunities even as you avoid risk. As an investor wanting to make a profit, as well as a responsible member of the investment community, your best bet is to stay in the game but adjust your strategy accordingly.
Economic uncertainty means that it is more difficult than usual to predict which companies will prosper, which will fail, which sectors will do well and so on. Recessions are notoriously hard to anticipate, and once they’re underway, it’s equally hard to say when they will end and which companies will survive.
However, there are advisors that make it their business to guide clients through uncertain times, leveraging their experience and insight to recommend investments that are relatively safe and potentially profitable.
Jeff Sica is an experienced wealth management and investment executive who is the founder and the CIO and CEO of Circle Squared Alternative Investments, which allows high net-worth individuals to invest in a range of non-traditional assets. Based in New Jersey, Sica is seen as an extremely reliable pair of hands when it comes to financial planning and equity arrangements through both good times and bad.
The micro and the macro
Uncertainty exists on both the micro and the macro level. On a micro level, individual companies may get in trouble and their stock value may fall, making them a bad investment. On the macro level, whole countries may face trouble, due to recession, unrest or war.
If this happens to a region that is the main producer of a commodity, such as oil, then that commodity may rise in value as demand outpaces supply, making it a good investment. This is one example of how economic uncertainty can create opportunity.
Some goods and services tend to do well in recessions, for instance, consumer staples, energy and discount retail. Investing in these counter-cyclical stocks can be another way to turn a profit. Avoid luxury goods and non-essential items, as consumers spend less when times are hard. However, when the economy recovers, these are often the first to bounce back.
Stay informed, stay balanced
In an uncertain economic climate, it’s especially important to stay informed about the market and world events and to make sure that you have a balanced portfolio. Monitoring the markets and current affairs will help you make informed decisions about your investments at the right moment, either selling to avoid a loss or buying to make a profit. Observe and understand what the market is doing and adapt your strategy accordingly.
Similarly, you should never have all your eggs in one basket. A diverse portfolio is essential to survive uncertainty, and you should have your money invested in a wide range of asset classes and sectors, as well as having investments spread across several different geographical regions. That means if investments in one area suddenly lose value, you should be protected by having investments in another that will continue to rise.
Ready for anything
As the economy changes, your portfolio should be rebalanced. Invest more in low-risk assets and reduce the number of riskier investments. Always keep some money in cash both for your own needs and so you can respond to opportunities without having to liquidate existing funds.
Keep informed and keep adjusting your strategy. Look for opportunities but don’t take unnecessary risks. Unsettled times needn’t mean investment losses, so long as you play it smart.