Due to the current global coronavirus pandemic, the global economy is experiencing huge shockwaves. Markets are at record volatility rates, with historical movements almost daily in both directions. During the middle of the crisis, on television, pundits and talking heads swap tunes like a DJ, flipping rapidly through songs. One day they assume the bottom is down, while the next they shout for a Great Depression repeat.
When all of this happens investors are afraid. And while they should be worried, it’s also important to have an action plan when major market events happen.
Although the explanation for the economic downturn this time is different, recessions, depressions, and corrections are part of normal market cycles. In this end, the first thing to remember is never to hesitate or be afraid to take decisions.
Over the past, the stock market has always recovered-in fact, there was never a time over market history when stocks were a poor investment over 10 years. At every point since its inception, equities have yielded a return of at least 7 percent over that period.
To put it, if you have a long time horizon as an investor, dips were mostly for buying on stocks. But for experienced buyers, the Great Depression was a buying opportunity.
With that in mind, here are some practical tips for handling your investments and tightening up your risk management during this time of difficulty.
1. Invest for Retirement
Someone who is not yet retired will follow the same policy they had before the recession, saving actively. And adding the dollar cost into the stock market in a tax-deferred fund such as a 401K or IRA.
While it’s frightening to see your net worth fall, your retirement plan has concentrated on rising your money for decades to come. When viewed in a long period, an economic downturn is more likely to be a buying opportunity than a selling opportunity. Think this decline is likely to be a blip in 10 years and the equities you bought will be acquired at a substantial discount.
If you were on the market during the financial crisis of 2008 and saw a portfolio drop of more than 50%, then you do know that it was successful to stick to your strategy. Note, a new bull market started in 2009 and lasted until the beginning of March 2020.
Focus on recovering inventories, without thinking about when.
If you retired then you have probably already heavily rebalanced into both stable bonds and cash. That is why, over time, you are reducing exposure to riskier properties.
2. Cash is king
Cash is an important part of any plan for fund and risk management, as it improves value during a downturn.
When you have cash in your crypto portfolio and view it as an asset, you can find that your portfolio’s Bitcoin value increases when the price of Bitcoin decreases – because Bitcoin “beating” the cash. You need to have cash so you can buy dips flexibly. Never deployed in full.
The same way of thinking is about equities. The cash’s buying power rises with equities being cheaper. There’s a reason why Warren Buffett sits on a $125 billion cash reserve. It is because he is waiting to buy distressed properties. You can do just the same.
Moreover, recent demand from businesses and countries around the world has generated a shortage of dollars as they store more of the currency than they need immediately in response to coronavirus fears.
Citizens want dollars in times of trouble. The dollar is still the only real safe-haven asset irrespective of how much the Federal Reserve is still printing. It is the reserve currency of the world
3. Increasing your support fund
Emergency savings are also essential, and general financial advice suggests that everyone should have cash available to cover living expenses for at least 3 to 12 months in case one loses their work.
In a time of global economic crisis, such a fund is much more important, with high unemployment and market volatility. When you already have revenue, it’s a smart idea to set aside some of the money to raise your cash reserves for more emergencies.
4. Buy Bitcoin
Each hedge fund manager or person who carries out a portfolio risk assessment will come to the same conclusion – buy Bitcoin. Bitcoin and crypto in general is arguably the world’s only truly uncorrelated asset. Meaning its value is not determined by the same underlying factors as anything else. In comparison to the systemic risk from every other asset, this provides idiosyncratic risk in your portfolio.
Everybody should have a small Bitcoin investment because it protects inflationary currency and bad actors. It is essential to the proper management of the risk.
For a retail investor, the easiest way to invest in Bitcoin is by measuring the expense of the currency. Dollar-cost averaging eliminates the guesswork and risk of buying everything at once. And it’s an agnostic price strategy that allows you to buy dips in a declining market over the long term.
Essentially, this is no different from investing actively inequities in a hedge fund.
5. Investors in Crypto should diversify
Everyone should be interested in something at 100 percent. Only the Bitcoin maximalist most hardcore will have a diversified portfolio with multiple asset exposure. The current economic downturn could give crypto investors a great opportunity to buy cheap equities, real estate, and bonds to boost their risk management.
Citizens are suffering all over the world right now. There is a growing fear that for an extended period the global economy will remain shut down. And that more employees will be lost. By controlling your portfolio risk properly. You can comfortably maneuver through some money-related issues through making excellent investment decisions that will bear long-term fruit.