As we’ve heard many times over; we are in unprecedented times. Every single layer of society has been affected by the spread of Covid-19, not least financial markets. In the past few weeks there have been astonishing highs and lows in stock prices, which really reflects the level of influence events have on the equity market.
Now, for investors with deep pockets and nerves of steel, these are exciting times, as prices fall to silly cheap levels before shooting upwards and potentially spitting out huge profits – unless there is even more hysteria. But for the rest of us, we have neither the risk appetite nor the bank balances to get involved in speculation.
From our point of view, security is everything in 2020. Now is the time to be seeking out assets with low correlation to world events and also other types of investments, assets that help you plan your cash flow. Here are some important things to bear in mind to help protect your money through this crisis of our generation.
Remember that cash is NOT a safe-haven
The apparent safety of cash is a myth. During a period where interest rates are lower than inflation, the real value of your cash is falling. Central bank interest rates have been cut to almost zero amid the economic challenges of the coronavirus outbreak and the returns you will be getting from the cash sitting in your bank is likely to be negligible. Unlike the stock market, cash is almost certain to lose real value in the next few months and years. Unfortunately, the low interest rates prior to the Coronavirus pandemic left most central banks with little room to maneuver in order to prop up their economies. Subsequently, the Coronavirus has created a perfect cash storm – limiting production and commerce due to illness and lockdowns and simultaneously destroying the leisure and travel industries. Both these factors will fuel unemployment and subsequently lead towards a lopsided recovery with slow growth in production, accelerating prices and as a result increasing inflation. Luckily the subsequent decrease in demand (as well as supply) should keep us away from recession.
Prepare for things to get worse before they get better
Research shows that at no point in the history of either the British or US stock markets have prices been lower than they were 10 years previously. So, if you haven’t got any imminent need for your money, you can put it in the stock market and be confident that it will rise over the long term.
Data collected by investment group Hargreaves Lansdown shows that stock market corrections can provide an excellent opportunity to make your money go further. However, this only applies if you’re prepared to sit and wait it out for many years before realising your profits.
Why not just wait to buy at the bottom?
When stock markets are volatile, there is no way of knowing when or where the bottom will be reached. There are a huge range of factors that determine how long the crashes continue.
Chances are, we’re still some way from the bottom. The S&P 500 for example has only fallen to the level it was in late 2018 when the economic outlook was much healthier. Many individual stocks, especially in the tech space, are up over a six-month period and still don’t look especially cheap – clear evidence of how hype-driven the markets have been. Realistically, the stock market is a dangerous investment arena for most of us at the current time.
Look for genuine safe havens
In times of turbulence, investors often rush to perceived safe-haven assets, including gold, property and bonds. Indeed, gold has rallied to within 8% of its all-time high in 2020, while falling treasury and gilt yields have pushed bond prices even higher. However, bonds might also not be the safe havens they once were following the emergency interest rate cuts made by central banks around the world.
Of course, property is an enduring market that has actually seen some uplift in the early part of the year, before coronavirus. This is almost certainly due to an uptick in interest from investors, although most of the buying activity was seen outside of the capital.
Property investment has never been more accessible and affordable, with the introduction of structured products, which brings us to our final point…….
Fix your returns!
Undeniably the safest investment at the current time is fixed income. Obviously no investment is without risk and much depends on the assets underlying a fixed income opportunity. That said, there is enormous value in knowing the date and amount you will be earning in returns, especially over the short term.
A fixed income bond, loan note or Innovative Finance ISA with property or other uncorrelated secure asset underlying the investment is one of the most secure places to park your money while we’re on the corona rollercoaster. It is important not to miss out on good opportunities just because the markets are turbulent.
To find out more about how you can protect your hard-earned savings over the next few months, speak to one of our consultants today.