2020 has certainly proved to be quite a year so far. We’ve only been through the first quarter of 2020 and things are already looking pretty crazy so far. From the raging Australian Bushfire crisis to threats of a global conflict, it looks as if things are only going to get worse.
The Wuhan Coronavirus or COVID-19 in particular has sparked fear in the minds of people all over the world, with China, South Korea, Italy and Iran being hit hardest. While China’s efforts to contain the spread of COVID-19 have been commendable, the effect of the virus on China’s already slowing economy remains to be seen.
Increasing uncertainty and fears of a global economic slowdown have left many asking the question; what can we expect to see in the future and how can we protect our investments?
In such situations, many investors would unsurprisingly begin turning to safe haven investments such as precious metals or blue-chip stocks in an effort to minimize their risk exposure.
However, things are rarely so simple and, in a market, fraught with uncertainty, proven and tested methods may not necessarily be the best course of action. So, with all of that in mind, we take a closer look at how you can better manage your risk exposure when investing.
1. Not all investments are equal
In a nutshell, one can simply define investments as being assets purchased with the expectation that said asset will appreciate in value or generate income in the future.
While all of this is simple enough on paper, investing is in actual fact much more complicated than that. Investments come in a variety of classes and can range from property to stocks and even luxury watches.
Hence before you start putting your money down, you’ll first need to recognize what is your risk appetite and your desired level of liquidity. If you’re looking for high returns on investment, you’ll most likely need to have a higher appetite for risk than is usual.
For example, cryptocurrencies have been known to have massively fluctuating rates of return that can either make or break you. Because of this, investing in cryptos exposes you to immense levels of risk that you may not be comfortable with.
On the other hand, government issued treasury bonds are one of the safest investments available on the market. However, these are long-term investments that have low rates of return which makes them hardly profitable.
As a rule of thumb, you should keep your portfolio as diversified as possible in order to reduce your risk exposure. Low-risk investments should ideally make up the backbone of your portfolio with a mix of high-to-medium risk investments.
2. Investing is a long-term game
Forget what you’ve seen on movies such as Wall Street (the one with Charlie Sheen not Shia LaBeouf) and Boiler Room where brokers and investment bankers make millions with just a week’s work.
When investing, always remember that you’re in it for the long-term. Forget about punting and speculating on stocks because unless you’ve got excellent market intelligence and plenty of luck, nine times out of ten, you’ll end up burnt.
The first rule of investing is to always be prepared to experience crashes in the value of your investment portfolio. The secret to staying successful is to not dump all of your stock at the first sign of trouble.
Instead, focus on building up a solid portfolio with good fundamentals such as strong earnings and real assets. With good fundamentals in place and proper due diligence, your portfolio will have no trouble weathering the roughest of storms.
3. Recognize what are safe haven assets
When it comes down to it all, investing is all about risk management. By keeping your risk exposure low, you’ll be able to protect your portfolio from potential complications for the foreseeable future.
This is why it’s especially vital that you learn and recognize what are safe haven assets. Safe haven assets are particularly sought after by investors for their ability to maintain or even increase in value during times of economic uncertainty.
Precious metals such as gold, silver, platinum and palladium are all examples of safe-haven assets. In times such as these where uncertainty and the threat of recession are at an all-time high, safe haven asset are sure to appreciate in value.
This can be evidenced by the increased demand for precious metals which can be seen by the strong outlook of Currency.com for future silver price prediction.
Investing can be a tricky affair for the uninitiated, however with the right preparation and knowledge, it can also be extremely rewarding. Given the flexible nature of investing, anytime would be the perfect time to get started.