Many economic and financial experts agree. There’s a good chance that the economy could become very unstable before long. It may be the result of inflation, global supply chain issues, or geopolitical strife worldwide. But regardless of the reason, all investors need to be prepared. There are some critical things to remember to prepare your portfolio for potential instability. Let’s take a closer look.
1. Pivot Away From Risky Industries and Asset Classes
There’s a time for speculative investments and risky bets with your money. But an unstable economy isn’t that time. This means many investors will want to transition away from tech companies, crypto, highly leveraged investments, and similar products. As quickly as these assets grew when times were good, they can collapse when things turn around – even dropping to zero in some cases.
Ideally, these risky investments should be replaced with stable companies with a long track record of financial success through past recessions and downturns. While these financial stalwarts may not look as attractive when the stock market is booming and the economy is great, their slow-but-steady returns are just what savvy investors look for as they weather the storm.
This is good advice in all economic situations, but it’s worth remembering as investors rebalance their portfolios for potential impending trouble. A diversified portfolio insures the investor against losing too much money should a particular company go belly-up or an industry faces specific headwinds. Investors should not only put their money to work in a variety of different sectors but also in various types of financial products as well. Overall, it’s one of the simplest and smartest things anyone can do to keep from losing more money than necessary should a recession strike.
3. Take Advantage of Commercial and Multifamily Real Estate
Many think of real estate primarily as renting or flipping houses, but unstable economies also present a particular opportunity to invest in commercial real estate. Nervous owners may be looking to sell and cash out, often at a discount. Even those without significant financial resources can finance these types of deals using products like DSCR loans, which are approved based on whether a prospective property will produce enough income to cover the monthly payments. These can also be used for multifamily properties like apartment buildings, which can act as a mix of commercial and residential real estate.
4. Watch Your Fees and Investment Costs
In general, investors should be wary of any funds, advisers, or other investments which take a significant portion of their returns. While a single percentage point or similar amounts may not sound like much, it can add up to thousands or tens of thousands of the life of an investment, draining you of money that should be compounding and growing your wealth. This can be incredibly frustrating when the investments aren’t performing as you’d hoped, as is often the case as an unstable economy approaches. Use impending economic headwinds to review your portfolio and see if there are ways you can cut fees. In some cases, investors can cut their fees to just fractions of a percent through the use of popular index funds and other stock and mutual fund investments that don’t require active management.
5. Explore Alternative Investments
Those looking to preserve or grow their wealth when the traditional financial markets are looking uncertain may want to invest in alternatives. Sometimes, these could be alternative financial investments like options or commodity futures. For educated, disciplined investors, these can offer value when the economy is unstable. Precious metals like gold and silver have also traditionally been solid investments, either through physically held coins or bullion or financial investments that track the price of the metal.
Beyond these, sophisticated investors can also grow or preserve their money in investments like art or collectibles. These often require more knowledge but can provide a great option that also serves as a beautiful decoration at the same time. Some investors have even purchased royalty streams from artists, musicians, and others, securing a portion of their future earnings from released work in exchange for a current investment.
6. When in Doubt, Get Help from an Expert
You’ve worked hard to earn and grow your savings and investments. That’s why it’s critical to do everything you can to protect them when the economy gets rocky. This includes speaking with financial advisors and other professionals who can offer their experience for your benefit.
Some may balk at paying for investment advice and guidance. But for many, it’s a small price in exchange for peace of mind – not to mention the real monetary savings they’ll experience relative to where they’d be otherwise.
Opportunities for Investors in Unstable Economies Abound
It can be easy to cash out all your investments, hide your money under the proverbial mattress, and wait for economic conditions to look better. But that’s precisely the wrong move, especially for those with an eye on the best returns over the long run. Instead, keep this list of investment tips and pieces of advice in mind, and you’ll be sure to weather even the most unstable economy.