After years of worrying about a global slowdown caused by increasing trade tensions between the US and China, and the impact of Brexit, now investors really have something to think about. COVID-19 has been like a wrecking ball to the economy, wiping billions off the world markets and causing GDP figures around the world to plummet.
As the coronavirus continues to take its toll, predictions are that the world will plunge into a deep global recession in 2020 and beyond, forcing investors to adapt their strategies significantly in search of healthy and stable returns. So, what steps can investors take to navigate the post-pandemic economy? These are our investment tips…
Don’t crystallise a loss
The FTSE 100 has fallen by more than 24 percent over the last three months, so many small investors won’t have had the courage to check on their investments of late. If they have, they’ll have had such a nasty shock that they might have been tempted to sell. However, selling after a fall will turn a paper loss into a real loss that could scare you away from the stock market for good. History tells us that a recovery will come, so you should stay calm, stick to your investment strategy and wait this one out.
Now could be the time to buy
Confident and brave stock market investors will be thinking that now could be the time to buy. With market instability set to continue, there will be a lot of businesses that represent excellent value right now. Buying in at a low price will allow you to benefit from the recovery that should begin in earnest once everything is back up and running. Investing smaller amounts every month rather than buying in a one-off chunk will allow you to smooth out the price highs and lows and reduce your exposure to volatility.
Diversify your portfolio
The key to building a recession-proof portfolio is to invest in a mix of asset classes that reflect your attitude to risk. The stock and property markets are quite volatile at the moment, so it makes sense to balance those investments with the more stable returns generated by government and corporate bonds or cash. Bonds represent a lower risk than many other forms of investment at this time and there’s a greater certainty of returns. Equities are much riskier, but in a resurgent market, the returns could be far greater over the longer term. Learn more about some of the most common investment strategies with this guide.
Generally speaking, moving your investments around too much during a period of uncertainty will do more harm than good. That’s because panic selling will crystallise your loss and prevent you from benefiting from the recovery. For that reason, we would advise making small changes rather than switching a large proportion of your portfolio around. The experts predict that while a global recession is now possible, economic activity should start to recover in the second part of the year.
What is your investment strategy for the next six months? Please share your thoughts in the comments section below.