From the importance of diversifying and focusing on dividends to the wisdom of choosing non-correlated assets, these insights offer a roadmap for financial resilience during downturns.
DIVERSIFY AND FOCUS ON DIVIDENDS
One effective strategy is to diversify your investment portfolio. Diversification means spreading your investments over asset classes, which are the different types of investments that you can buy. These asset classes include stocks, bonds, real estate, and commodities. Diversification helps to reduce the risk of your portfolio because different asset classes tend to react differently to various types of economic events. For instance, even if stocks fall, bonds or gold might remain stable or even increase in value.
A more specific strategy to protect your portfolio is to invest in high-quality dividend payers. Companies with strong balance sheets and a history of consistently paying dividends tend to have better downside protection during economic downturns. Dividends are a stable income stream and can lessen the impact of price declines in your stock portfolio. Dividends can also be reinvested, allowing you to compound your investment before the market rebounds.
Finally, keep a certain amount of cash in reserve or as an emergency fund; this liquidity can help you to cover unexpected expenses without having to sell investments at depressed prices. The cushion that comes with an emergency fund might also allow you to buy assets at lower prices when markets correct and then make the most of the economic recovery. People tend to forget that cash is a position and can be used strategically to your advantage.
Erika Kullberg, Attorney, Money Expert, and Founder, Erika.com
EMBRACE GEOGRAPHIC DIVERSIFICATION
To protect investments during economic downturns, focusing on diversification is essential. During the COVID-19 pandemic, I witnessed firsthand the impact of a well-diversified portfolio. By spreading investments across various asset classes, such as stocks, bonds, and real estate, one can mitigate risks associated with any single sector’s downturn.
Diversification doesn’t just involve different asset classes; consider geographic diversification as well. Investing in international markets can balance domestic economic fluctuations. Review and adjust your portfolio periodically to ensure alignment with your long-term goals and current market conditions. This proactive approach can provide a buffer against unexpected economic shocks, enhancing overall investment stability.
Ace Zhuo, Business Development Director (Sales and Marketing), Tech & Finance Expert, TradingFXVPS
IMPLEMENT DOLLAR-COST AVERAGING
To protect investments during economic downturns, diversification is key. By spreading investments across various asset classes, industries, and geographical regions, you reduce the risk of significant losses if one sector or market performs poorly. It’s also crucial to maintain a healthy cash reserve. This liquidity can help you weather the storm and take advantage of opportunities that arise from the downturn, such as undervalued assets.
One specific strategy I recommend is the implementation of a dollar-cost averaging (DCA) approach. This involves regularly investing a fixed amount of money into the market, regardless of its performance. By doing so, you purchase more shares when prices are low and fewer when prices are high, effectively reducing the average cost per share over time. This method mitigates the impact of market volatility and helps build wealth steadily, even during economic downturns.
Brandon Thor, CEO, Thor Metals Group
CHOOSE NON-CORRELATED ASSETS
Do not put all your eggs in one basket. Diversify. Aim for a basket of assets that are not correlated to each other. What that means is that when macroeconomic or other factors like war or financial issues happen, your assets do not move together in one direction. For example, during times of turmoil, gold and commodities have traditionally done well. Stocks do well in a low-interest-rate environment where the economy is growing strong.
Zain Jaffer, CEO, Zain Ventures
COMBINE DIVERSIFICATION WITH INCOME ASSETS
As someone who’s seen a few economic downturns, I know how important it is to protect your investments during tough times. One thing I always recommend is diversifying your investment portfolio. This means spreading your money across different types of investments like stocks, bonds, real estate, and even commodities.
Take the 2008 financial crisis, for example. A lot of people who had all their money in stocks lost big. But those who also had bonds and real estate fared much better. Personally, I’ve always kept a mix of investments to reduce risk. At Leverage, we stress the importance of diversification to our clients, especially when things are uncertain.
Another tip is to invest in stable, income-generating assets like bonds and dividend-paying stocks. These can provide steady income even when the market is shaky. This strategy helped many of our clients during the COVID-19 pandemic.
Having an emergency fund is also crucial. I suggest saving at least six months’ worth of living expenses in an easily accessible account. This way, you don’t have to sell your investments at a loss if you need cash.
And lastly, don’t panic. Economic downturns happen, and staying calm and sticking to your plan is often the best move. At Leverage, we help our clients navigate these tough times without making hasty decisions.
Rhett Stubbendeck, CEO & Co-Founder, Leverage Planning
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