It feels like we might actually be nearing the end of the seemingly endless bull run that we’ve been on. Up until recently, the United States has been riding a 13-year stock market bull run that started in 2009. But, the S&P 500 is currently having one of its worst starts to a year ever. In addition to that, inflation is at a 40-year high. There is also a land war in Europe that has no end in sight. And, despite its abysmal start to the year, the S&P 500 still has not returned to its 2020 levels. This could mean that there is a lot more pain ahead of us. In other words, it’s an excellent time to brush the dust off a few safe investment options.
These safe investment options are good strategies to implement over the coming months. Strategy No. 1: Automated Index Investing During times like this, it’s important to remember that real money is made during recessions. This might sound counterintuitive. But, if you look at a graph of the S&P 500, the best times to buy stocks are actually in the years following major recessions. If you loaded up on stock in 2009 then you have probably been in the green for the past decade.
During recessions, stocks are essentially put on sale. Granted, it takes courage to go against the grain and buy when the market is red. But, doing so will likely pay off within a few years as long as you do it safely.
When it comes to safe investment options, Automated Index Investing is one of the best. This strategy looks like this: Invest in index funds : Buying index funds helps to diversify your money and is safer than buying individual stocks. During a bear market, even the largest companies are susceptible to going out of business. You want to protect yourself by investing in broad indexes instead of singular companies.
Automate your contributions: Set up your account so that a purchase order is executed every week, biweekly, or monthly (depending on your preference). Making your contributions automatic will help take your emotions out of your investing process. It also ensures that you are buying at every stage of the market cycle. In other words, you can avoid buying high and selling low.
Hold cash: During a bear market, it is also a great idea to keep extra cash aside. This way, you have money to buy more stock when you feel that the market has over-corrected. The key isn’t to hold cash long-term. The key is to wait until you sense that there is an opportunity and then make a move.
Speaking of holding more cash… Strategy: No. 2: Adjust Your Risk Profile
During a bear market, one of the best safe investment options is to continue your current strategy but update your risk profile. By this, I mean that you should pivot to more risk-averse investments. Here are a few examples of what this could look like: More blue-chip stocks and fewer startups or IPOs.
Fewer stocks altogether and more safe assets such as bonds and real estate.
Hold a higher percentage of your portfolio in cash.
Exiting margin positions.
Hedging your portfolio to protect against downturns.
This is a good time to remind you that I’m not a financial advisor. These are just general tips. The best asset allocation for you will depend on your risk tolerance. If you feel the need, please speak with a financial advisor before making any investment decisions.
However, in general, the biggest rule of thumb is to hold cash during a bear market. Yes, it’s true that inflation is eating away at your cash. But, you’ll lose much less money through inflation than you can lose during a down market. You want to have cash on hand so that you can purchase stock once you feel that the market has overcorrected.
Holding cash also serves a double purpose of giving you a sense of financial stability. Finally, one of the last best safe investment options is actually to take a break from investing in traditional assets altogether. Strategy: No. 3 Invest In Something Other Than Assets
The Merriam-Webster definition for “invest” is “ to commit money in order to earn a financial return. ” We almost always associate this with buying stock, real estate, or bonds in order to make money. But there are plenty of ways that you can invest money and earn a financial return other than these three entities. This is […]
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