Investing In Times of Crisis
It’s all relative. Investments come and go, life doesn’t.
And with due deference to the importance of your health during this pandemic, it’s also smart to explore right away the best ways you can protect and even grow your investments.
Here are some simple recession rules for investing during times of global hardship.
1. Fight the Fright
We live in nervous times.
The coronavirus is the largest microscopic threat facing humanity, but there’s no reason to overreact. While global emergencies like these are nothing to look forward to, carrying the mood of panic into your trades is equally ill-advised.
What today is a global calamity, is also, with all due perspective, an opportunity for the more level-headed among us.
A trader stricken with panic is one who’s either going to lose their investment or, more likely, miss out on opportunities to chase huge gains.
Separate your emotions from your investment decisions if you want to outperform the market.
2. Look For Safe Havens
Traditional “safe havens” are assets that remain steady or climb in times of crisis when most other markets are falling.
In the last two weeks, while the rest of the market has been getting clobbered, the US dollar has risen to claim the throne as King of the safe-havens.
It is, after all, the world’s reserve currency. Hoarding dollar gives investors a power play for later moves, affording the ability to buy stocks for cheap when an upturn seems finally likely. As a result, the USD usually performs well in tumultuous times.
Gold is another “traditional” safe haven, but hasn’t been doing so well in this particular crisis. While gold hasn’t collapsed as dramatically as stocks, it has unmistakably surrendered the safe-haven throne to the greenback God during this pandemic.
Nevertheless, gold remains a great asset to track when more geographically restricted crises rear their heads, particularly news that may be detrimental to the dollar.
3. Go Shorty
One of the key powers vested in CFDs trading is the ability to go long OR short on any market in the world.
So even if you’re watching prices crater across the board, you can still chase huge gains on the sell side just as easily as if you were on the buy side.
Since all assets are traded in pairs, when one asset falls, another rises.
Understanding the unique ability in CFDs to enter sell positions is key if you want to take advantage of slumping stocks or imploding indices.
Don’t focus only on what you can buy – scour the land for short trades.
4. Speaking of Stocks…
Yes, definitely seek your chance to get in on the short side of stock price devastation.
But equally, seek opportunities to buy when shares hit rock bottom.
It’s the most famous scenario in all of investing. Buy cheap, and when the worst is finally over, with uncertainty banished and the skies sunny again for stocks that have survived the slaughter, the rise in share prices can be relentless.
Keep your eyes open for signs we’ve turned a corner. Then, consider going long on stocks and indices.
5. Maybe Don’t Buy Emerging Currencies
Up-and-coming currencies don’t like global catastrophes. According to analysis from JPMorgan, in the two-year period at the start of a recession, these emerging currencies fell by 17 percent on average.
During the last global recession, the New Zealand dollar was one of the worst-performing assets. A quick look at the NZDUSD chart this time around tells a similar story.
Refer to points 3 and 4 above. If you’re going to get in on emerging currencies, seek the sell side while the crisis is live, or the buy side when a revitalised global economy has more risk appetite.
Nobody can say for certain what the next twist in the tale might be, whether that’s good news or bad news for the world.
Spreading your risk across several trades is a wise convention to follow. Track your trades closely and adjust your weight in each position according to what you see.
We hope these 6 pointers will help you to protect your investment during these volatile times.
The markets are highly volatile, ensure you have sufficient margin in your account to cover open positions. New to TIOmarkets? Simply sign up and create your account to start trading with a low-cost broker today.