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Growing wealth during a crisis – lessons for resilient investors – Investment Watch

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The COVID-19 pandemic has influenced not only investment opportunities but also the investors’ mindset. Those who had planned to make their first investments were put off by the pandemic’s far-reaching consequences and decided to wait for better days. Those who already had a few assets chose to change their strategy, focusing on less risky investment vehicles. According to InMoment research, 78% of investors still had available funds in 2020 but didn’t plan on investing any time soon (most experts don’t expect a full recovery until late 2021). The only ones who went against the trend were investors with above-average expertise or who did not work with a financial advisor.



The COVID-19 crisis took everyone by surprise. It was the most disruptive event of the century, and even though we all expected it to go away quickly, like SARS, it will continue to change enshrined financial behaviors for years to come. For most regions and industries, the future is uncertain, and the looming threat of a recession might make you keep your cash under the mattress instead of investing it.

But finding investment opportunities during a crisis isn’t impossible. There are investors who made huge profits from financial crises, and even though you might not be able to reach the figures of Jamie Dimon and John Paulson, you might still manage to grow your wealth.

How to confront the challenges of global economic uncertainty

In an episode of Trust TV, Mike Kerley, fund manager of the Henderson Far East Income Trust, explained the strategies that the trust used to address the challenges of an uncertain economic climate, and the lessons should apply to every income-seeking investor:

  • Diversity of Asia-Pacific region
  • Investing in resilient economies and industries
  • Assessing financial solidity
  • Understanding the main economic drivers in the region

You can watch the full interview in these Trust TV Highlights.

You don’t have to put investments on hold, but you will need to review your strategy.

Especially if you’re a beginner investor, you might be put off by a crisis and keep your hard-earned money in your bank account, where nothing can happen to it. But even during a crisis, money should still work for you. You can continue to invest, but keep in mind that what you were doing before the pandemic might not work now. The global economic climate is different, and that means you have to review your strategy and make some changes if necessary:



Focus on low-risk investments

The high risk-high reward approach can still be applied during a crisis, but it takes years of expertise to master it. If you’re not there yet, or you just don’t feel comfortable experimenting, focus on low-risk investments instead. Examples include:

 

  • Companies with good cash flow and little to no debt
  • Essential sectors that will always be in demand and that have historically shown resilience during periods of economic turmoil, such as pharmaceuticals, consumer goods. However, remember to take the current context into account too. The COVID-19 crisis is different from past recessions, and it affected businesses that had previously been immune to reduced spending (i.e., retail, logistics, accommodation, education, etc.). At the same time, it boosted “underdog” industries (DIY stores, teleconferencing tools).
  • Dividend stocks are an excellent source of passive income. Just don’t forget to check that the company has a healthy balance sheet.
  • Real estate can be hit and miss, depending on regional economic factors. Although the popular assumption is that property prices drop during a crisis, this isn’t a rule. Based on commercial activity in the region, economic prospects, and buyer behavior, things can go either way. For example, in the UK, house prices rose as many people chose to relocate to the countryside.
  • Precious metals, gold in particular, do well during times of crisis. For example, the price of gold has risen by over 30% in the US due to the pandemic, reaching a record $2,000. Other precious metals you might want to invest in include platinum and palladium, but remember that you don’t have to own them physically. You can also invest in metal ETFs and mining company funds.

Diversification is key

Even if you put a lot of research into your investments, the market can still be unpredictable. This crisis, or the next, can incur losses, and one of the biggest lessons of investing is that many times losses are unavoidable. However, you can mitigate losses by diversifying your assets. This way, if one sector loses value, others will pick up. It doesn’t even have to be a global recession. Stocks may lose their value for many reasons, but you can soften the blow by spreading your investments across different asset classes (equities, commodities, stocks, etc.) and investing in different industries in various parts of the globe.

What if I’m still not comfortable investing?

You should never invest because of peer pressure. Even if you can make money during a crisis, as long as you don’t feel comfortable, you shouldn’t do it. Psychology plays an important part in investing, and if you didn’t want to get into it in the first place, you’ll end up making rushed decisions based on panic.

But that doesn’t mean you should keep your savings in cash inside the house either – this is actually one of the least safe places for it. Firstly, because it can be stolen or destroyed and secondly because it loses money over time and doesn’t earn any interest.

You should at least consider a high-yield savings account, which has interest rates up to 20-25% higher compared to traditional savings accounts. Even if the interest rate might not sound like much, it will add up over time.

When in doubt, don’t hesitate to seek the help of a financial advisor. Everyone has a different financial situation, and if you don’t understand all the factors that can influence your income, a consultant can give you personalized advice and help you navigate investment opportunities – yes, even during economic turmoil.

 

Disclaimer: This content does not necessarily represent the views of IWB.






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