Where is the Best Place to Park Money in Uncertain Times?
As of this blog post, the stock market is down more than 20 percent for the year, which could not have occurred at a worst time. Inflation is currently at its highest level in forty years, so every dollar we make is worth less than it did a year ago. Meanwhile, the values of various cryptocurrencies and non-fungible tokens (NFTs) are plummeting, despite the fact that crypto has been marketed to the public as a "hedge against inflation" for years. And, not to mention that even the finest high-yield savings accounts only pay slightly more than 1 percent?
If you care at all about your finances, you are aware that virtually all current news is negative, including the war occurring in Ukraine, massive inflation, etc. What’s even more worrisome is the reality that no one knows when the hardship will end.
However, despite this:
Many fortunes have been made during periods when it appears that nothing is going right. Remember when during the darkest days of the pandemic, the Dow Jones Industrial Average plummeted to just over 20,000 in March of 2020? Those who invested in the market during those days and the subsequent months witnessed the Dow climb to over 33,000 by the end of March 2021. This means that if you had invested at the start of the Covid-19 pandemic, you would have had a return of more than 50 percent in just one year.
Yep. Currently, the Dow is still above 30,000. (as of this writing).
Investing in the stock market has always been volatile, but at different moments in history more so than at others. But how can you maintain confidence in your strategy when the investment world appears to be collapsing? You’re probably contemplating where the best places to park your money are. Well, when volatility hits, most investors move their money into safe investments. More stable, lower-yielding investments help protect your cash—and may even provide modest growth. To be honest, the question really boils down to what your financial goals are. If you are investing for the long term, which is 10 years or more, it will look very different from what you are trying to achieve with your money for the next six months. We recommend being patient while waiting for good deals on things you want to buy or investments you want to make!
If you just want to feel better about the volatility, you might look for safe assets, which are often the assets that are least likely to fluctuate or change. For example, things like real estate that you plan to keep for 30 years, (like a rental property) or farmland. Farmland is one of the least volatile investments, but in general, the less you rely on financial markets, the more stable your investments tend to be.
So where should one invest during uncertain times? Again, it depends on your goals and how much time you have, and you can find that correlates to whatever aligns with your goals. Even when the economy is in a slump or the market is falling and volatile, there are still ways to invest. When the economy gets back to normal, you can be ready to do well if you know what the opportunities are and how to take advantage of them. If you want to protect your money from bad markets, these seven safe investments are less risky than stocks and can give you the peace of mind you're looking for!
Here are 7 ways to make that happen:
1. Farmland Investment
Investing in farmland has a number of benefits, many of which are shared by other well-known investment strategies. These can include increased returns on your investment, increased yields, improved diversification, and a whole host of additional benefits. Farmland investment returns are uncorrelated with stocks, bonds, real estate, timber, and short-term agricultural commodity prices. Farmland adds diversification and is a good inflation hedge. In the last 29 years, farmland has had a better average yearly return than most assets (1992-2020).
(1) Historically Attractive Returns (1992 - 2020 / 11.01%)
(2) Low Volatility of Returns (1992 - 2020 / 6.9%)
(3) Uncorrelated with Other Asset Classes (1992 to 2020 / -0.05 to 0.45)
(4) Long-Term Tailwinds (strong demand, declining supply, recession/inflation-resistant)
2. Real Estate
Adding real estate to a portfolio can be a smart way to protect against volatile stock markets, even in light of current market conditions. The fall in the value of real estate often occurs at the same time as a collapse in the economy and the stock market. In most cases, rents go down because tenants have difficulty meeting their financial obligations and landlords have a difficult time finding new tenants. There is also a tendency for housing values to fall when there are a small number of buyers and a large number of homeowners who want to sell.
Real estate investment becomes more appealing for individuals who have the financial resources to make purchases when the government reduces interest rates in an effort to stimulate the economy when there is a slump in the real estate market. Even if you just buy a home to occupy for the foreseeable future, you may still be able to secure a mortgage with a manageable monthly payment if the market is weak. This gives you more financial freedom, allowing you to make extra investments, as well as more flexibility with your budget.
3. Valuable Metals
Precious metals, such as gold and silver, are favored by some investors as a hedge against inflation and bear markets. The theory behind this is that even if governments change the value of their currencies, these metals still have some sort of intrinsic value.
There are numerous ways to invest in precious metals. You can buy metal bars and coins and store them at home or in a storage unit. You can also buy a mutual fund or exchange-traded fund (ETF) that tracks the price of a metal. Another way to invest in precious metals is to buy stock in mining companies. By doing this, you can get immediate access to the metal and its value without having to store coins or bars. Investing in a certain company does come with more risk, though.
When the stock market is performing poorly, some investors remove their money from the market and place it in cash. Cash is a highly secure asset class that also happens to be one of the most versatile asset types. The Federal Deposit Insurance Corporation provides insurance for cash deposits up to a limit of $250,000 for each kind of account and each financial institution that participates in the program. To put another way, you can put $250,000 into a savings account and another $250,000 into a checking account, and the government will guarantee the total sum of $500,000 that you have deposited. In the event that the bank goes out of business, you will still be able to access your funds.
Cash, on the other hand, does not give investors the returns that other types of investments, such as stocks or bonds, do. However, it is simple to invest your income in new opportunities as they present themselves to you, and you can always use the money to pay bills in the event that you lose your work or experience some other type of calamity. You can decide how much money you wish to keep in cash, perhaps missing out on market returns while also knowing that you won't suffer losses from declining stock prices. If you find that having extra money in the bank makes you feel more comfortable, it is not unreasonable for you to help boost your emergency fund once the downturn in the economy has passed. Even when times are good, it's important to have a healthy financial reserve in the form of an emergency fund to fall back on. Having more cash enables you to easily manage any unanticipated charges that may arise.
You have the choice to go to other assets, like fine art, if you're concerned about investing in the market. There is a chance that the artwork will increase in value over time as it is more widely recognized or the artist becomes more well-known. However, art does not pay dividends or interest the way stocks and bonds do. It's simple to purchase pieces of art by well-known painters thanks to startup businesses like. You should only invest if you are knowledgeable about the market or aren't putting money you can't afford to lose into it because the art market is extremely different from other sorts of investing.
Nevertheless, even a tiny investment can be a novel method to diversify your holdings!
6. Mutual Funds
Mutual funds can concentrate on certain economic sectors or have interests in hundreds of various companies spread over the whole stock market. They may also keep cash or other assets, such as bonds.
Diversification is crucial to lowering your risk in a down market. While investing in only one security, mutual funds make it simple to diversify. For instance, index funds frequently hold hundreds of equities, if not thousands. You can choose a mutual fund based on how you want to divide up your assets (asset allocation) and how much risk you are willing to take (risk tolerance). You can invest in a fund that only owns bonds if you want to play it safe, or you can invest in a fund that only owns stocks if you want to take some risks and ride the market up.
Dollar-cost averaging is a well-liked method of preventing significant losses. This entails purchasing an investment, such as a mutual fund, on a regular basis. By making consistent purchases, you avoid mistakenly purchasing shares at a peak by buying them during price declines and gradual price increases.
For those who enjoy investing in stocks, a downturn in the stock market is a great time to buy. For stock investors, a bear market is like a sale at their favorite store. You can buy shares for a lot less money than you normally would. Even in the best of circumstances, picking individual stocks can be challenging, therefore some investors choose to concentrate on well-established businesses or blue-chip corporations with strong balance sheets and a positive cash flow. Consumer staples, such as businesses that produce packaged food or cleaning products, are a well-liked option for investors seeking stability because their demand is generally consistent even during an economic downturn, despite the fact that no industry is recession-proof.
These large, well-known companies are also often dividend stocks, which is an added benefit. If share prices go down, you can quickly add to your holdings by putting those dividends back into the stock. Even if you lose money in the short term, buying shares of a company can help you build wealth in the long term if you have the money and a stable income. Although investing can be scary when the market is unstable or going down, there has never been a better time to work on getting ahead financially. If you have the money, you can ride the market's recovery by building a profitable portfolio by buying farmland, real estate, or stocks at a discount.
Interested in working with us?
Your Vincere Wealth Advisor will work with you to:
✔️ Create an investing strategy that is based on financial science and is suited to your needs, goals, and risk tolerance.
✔️ Construct a portfolio along the dimensions of expected returns, taking into account your risk tolerance.
✔️ Take steps to minimize the impact of taxes.
✔️ Increase investment value, control costs, and keep an eye on turnover all while retaining a wide degree of diversification.
✔️ Maintain discipline during market dips and swings.
Simply set up a FREE 1:1 session with us by clicking the link here to learn more about how you can make your money work for YOU.