In a downturn, there are two types of portfolio holders: ones that are happy and ones that are pissed. While one expects the majority to be ones that are pissed, that doesn’t mean that you have to be one of them! There are always stories told of individuals who acquired massive riches during a bearish economy. Others find refuge in more stable assets. Either way, there’s a way to save it and keep it sexy.
According to Forbes, the keys to a great portfolio in deflationary periods are cash, commodities, and oil. However, one has to be savvy in what they choose because all that glitters isn’t gold. Another point to keep in mind is buying when the prices are low. You don’t want to be caught in the midst of market hype. A resilient portfolio can sometimes be a lonely one.
The Fed has kept the interest rate low, and the Consumer Price Index has declined slightly at the beginning of the year. It means we’re currently dealing with mild deflation, which isn’t all that bad. However, it can lead to a lot of volatility in the market. The younger you are, the more risk you can stand to bare. So here are some ideas to keep in mind as you’re working to balance out your portfolio:
Cash & Treasuries
It sounds corny, but in a depression, cash is king. One might want to consider having a small emergency fund of survival cash in a disaster proof safe within the home. The second most secure thing next to cash is to buy is a short-term treasury. They’re safe but effective.
While now isn’t the best time to buy into gold since the market is currently overvalued, it’s something to keep in mind once the metal takes a fall. Gold keeps up pretty well with inflation and becomes extremely popular when the economy experiences a downturn. Alternatives to buying gold directly include holding a company or index fund loaded with gold operations with great earnings, management, and history.
High Quality, Dividend Earning Stocks
While they’re not the high-yielding return stocks that technology stocks can be, they prove to be a beacon of light in a bearish market. While other portfolio holders stare into a negative abyss, shareholders of high dividend stocks can at least have some income to look forward to receiving.
While seasoned investors profit off falling stocks through fancy options, derivatives, hedging, shorting, and such, there’s another easier-to-digest method: inverse ETFs. These funds utilize fancy derivatives to profit off the losses in the market. ProShares Short (SH) is the example given as it works to yield the inverse results of a falling S&P 500, but one should still conduct their due diligence before jumping into any fund of any sort.
Oil can be extremely volatile, experiencing a sequence of highs and lows in short periods of time. The simplest thing to do in this case is buy when oil is bargain priced, which seasoned investors are currently buying right now with eyes on the future, and sell when there’s peak interest. Another option is to invest in a mutual fund or ETF with great allocation and satisfactory performance.
Utilizing either all of these or only a selection would put you far ahead of the pack. Best of all, you’d be preparing for the worst but hoping for the best. It would make all the difference when the next bear cycle comes around and people are walking around looking pissed. Meanwhile, you’d be looking ahead for your next bargain purchase while everyone else is distracted with their losses. That’s what we’d call Grade A Behavior!
Images courtesy of James Baigrie, Anthony Bradshaw, and Hal Bergman.
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