The global financial market has become a volatile and dangerous place. Dramatic current events are overtaking each other each day, and major countries are experiencing political turmoil; all factors which affect not only individual job security, but also the stock market and wider economy. Some commentators have even (perhaps over-zealously) claimed we are living in apocalyptic end-times as disasters from the Bible appear to come upon us – fires in Australia, locust-plagues in Africa, pandemic spreading across the world.
Whilst a dramatic theory, for most of us, it seems unlikely that the end-times are indeed nigh. However, that’s not to say that these events won’t have drastic and far-reaching consequences long after their immediate effects have vanished. Many experts have predicted sudden and severe economic depression, and the stock market is already seeing the effects of a decrease in business activity. In times like these, it is hard to know how to be proactive and continue both protecting and growing your portfolio with minimised risk, whilst planning for the future. Aside from the uber-rich, everyone suffers in global depression – but there are ways you can mitigate these effects, and be prepared.
The online market in cryptocurrency has long been known as a volatile, risky investment. When it first emerged as Bitcoin in 2009, cryptocurrency came under heavy scrutiny and derision from mainstream commentators. However, since then it has turned into a force to be reckoned with. In 2019, the cumulative value of the cryptocurrency market sat at 237.1 billion U.S. dollars, which was almost double what it had been the year before. Overall, it is a growing market with more and more people choosing to invest every day.
Furthermore, there is evidence to suggest that cryptocurrency may become a relatively ‘safe’ option compared to traditional currencies and markets in times of recession. In 2019, research by Bloomberg suggested that Bitcoin “may have become a refuge for people hedging the yuan’s depreciation”, as its value moved in direct inverse correlation to China’s traditional currency. This may be a sign of things to come. If there was ever a time to start thoroughly researching the cryptocurrency market and becoming knowledgeable about good investment strategies, it is now. Of course, it remains a high-risk market; however, if you are someone with a talent for investment, or who thrives on excitement and energy, cryptocurrencies may prove a
If you already own Bitcoin or other alternatives, now is the time to check and consolidate where you stand. If you are a newcomer, there are many places you can start, including online courses and advisory services who can help you invest safely and keep your money working for you.
At the first signs of economic downturn, it can be an instinctive urge to immediately pull all your investments in an attempt to minimise losses. However, this kind of knee-jerk reaction can often be counterproductive as certain markets stabilise or even grow slightly. Wise investment is about quick reactions, yes, but it is also benefited by thinking long-term and hedging bets on predictions and strategies that do not simply react to the first unexpected fluctuation in the market. If you’re unsure about the status of your investment, or what areas it lies within, speak to an investment advisor as soon as possible before taking any action. They will have a much more complex grasp of market trends than an individual investor, particularly if investing is not your main and only source of income. An advisor will be able to tell you when the best time to move will be, and how at risk your particular investments are.
Having advised patience, it must be stated that patience is only useful if you are also vigilant. In order to track trends and make useful predictions, you need to be constantly aware of changes to your investment stocks and the general market. It is no good being ‘patient’ if the market is falling away under your feet and you are unaware it is happening. If you need easy access and can’t always be at your computer, there are some great apps you can use to track the stock market so you can keep an eye on events wherever you are, or whatever you are doing. Though it won’t be making you money, by far the safest form for your finances to take in a recession is as liquid, cash assets that are not linked to the stocks and shares of a particular market. Be ready to move or withdraw your investments if necessary to protect them, and again, if you’re not sure of the best course of action then speak to an advisor before making your decisions.
In terms of being vigilant, there is one market which could benefit the quick-thinking investor; the foreign exchange market. If you haven’t entered the world of foreign exchange yet, it involves changing and trading money from one currency to another for various purposes. Shortened to Forex, investors can use the market to speculate and hedge against global events and the rising or falling value of different currencies. The market operates 24 hours a day, 5 and a half days a week – and interestingly, has no central marketplace. Instead, all transactions occur between individual traders around the world. In times of uncertainty, Forex can become a fascinating market it would be well worth investigating, enabling you to move assets ‘around the globe’ between currencies to increase value and potentially decrease the risks tied to a single form of currency. If you want to explore this further you can find a forex broker here. As with the cryptocurrency market, there are also online courses to take, websites to comb and articles to read which will give you greater insight and knowledge before you start to put your investments at stake.
Of course, if you don’t wish to stick with your current portfolio, pull your investments entirely, or look into new opportunities such as cryptocurrencies or Forex, there are other avenues you can take to maximise your investments. The most useful (and perhaps most obvious) option involves the most basic and yet most difficult aspects of investment; staying vigilant, and predicting trends. If you can see a few days (or even a few hours) ahead of everyone else and identify
With a world of ever-changing and dramatic events, businesses can quickly become hugely relevant. For example, between 7th April and 15th April 2020, Zoom’s shares rose from 113.75 USD up to 151.46 USD. This is a great case study for many reasons. The shares had last risen to a high of 159.56 USD on March 23rd, but then fallen back down to the 113.75 USD mentioned above on April 7th. A reactionary investor may have pulled their stocks then, worried about a greater economic downturn – and missed out on the following rise. A smart investor predicts the likelihood of a sharp increase in video calls, identifies Zoom as a leading market contender, invests quickly and then trusts that any small downturns will rectify themselves, as indeed this one did. The market value of Zoom between the middle of March to the middle of April is a brilliant case study for investors looking how to manage their assets moving forward. With global events come change, and with change comes new business ideas arriving at the fore, and with that comes opportunities for profit. If you can identify the next emerging trend, you stand in a great position to capitalise on that.
Prepare: Save a Cushion
The most important way your money can work for you during a recession is by housing, feeding and clothing you. All the investment and profit in the world is for nothing unless you can see to you and your family’s basic needs. It is recommended that the average person have at least 3 months living allowance (including rent or mortgage, bills and utilities payments) saved in an accessible format. If you are retired, or do not have regular earnings, this figure is raised dramatically to 5 years worth of funds. This may seem excessive, and it is easy to put impulse purchases or holidays ahead of shrewd financial planning. However, it is one of the most important actions you can take to protect yourself in a recession. These savings will give you a safety cushion and the ability to sustain yourself if the worst happens – and they have another benefit. A separate safety cushion can take pressure off your investments in a time of crisis. This will not only allow you to relax and keep your mental health, but enable you to view your investments more objectively, perhaps making decisions with a level of risk (but the potential for high reward) that you would not be able to do if your livelihood was tied to the assets in question. In order to protect and maximise your investments – whether through Forex, cryptocurrency, or more traditional methods – you must first protect yourself.