When markets are volatile, investors need to stay calm and proceed with caution. Here’s a guide to investing smarter during uncertain times.
In times of economic uncertainty, it’s understandable that people may fear putting their money in the stock market and other investments. But could investing now potentially be a smart move for your financial future?
Investing always carries risk — there are no guarantees in life, and there’s just no way around that fact. However, smart investors know that there may be investment potential, no matter what’s happening in the markets. Consider this your roadmap to investing smarter during uncertain times.
Play the long game
“Time, not timing” is probably one of the most important principles in investing. Investors tend to fret over whether it is a “good” or “bad” time in the markets — but the truth is, finding the right time to invest isn’t nearly as important as how long you stay invested. A long-term strategy will allow your investments more time and opportunity to appreciate (particularly when investing in emerging markets) and to recover from bumps along the way.
Studies have shown time and again that staying the course with long-term investing — through market highs and lows — is far more likely to be profitable than pulling out in a panic. And the longer your investment time frame, the greater the chances for positive returns — so start as early on in life as you can and be prepared to weather the storms.
Make investing part of your long-term plan with eToro’s Investment Portfolios.
Expect the unexpected
No one has an investment crystal ball (wouldn’t that be great?) — but one thing any seasoned investor will tell you is that there definitely will be turbulent times. No one can predict when those times will occur, but we do know that declines are just naturally part of any economic cycle. Of course, we’d all like to avoid losses, but too much fear of them can keep you on the sidelines, missing out on not only the pain, but also the possible gain.
Although there are no guarantees, historically, downturns have been followed by an eventual upswing. Risk management is certainly smart — but trying too hard to avoid any loss at all could itself be the most risky investment decision of all.
Don’t put all of your eggs in one basket
Speaking of risk management, diversification is one of the top strategies for any investor, whether beginner or advanced, to adopt.
Markets tend to be cyclical, with many types of assets working in correlation with each other. For example, stocks from the tech sector tend to rise and fall together, known as a positive correlation. When tech stocks are down, traditional industries such as utilities and healthcare tend to see gains — this is known as a negative correlation.
Spreading your investment capital over a variety of assets so that you have balanced exposure to different industries and regions allows you to stay afloat if one or two of the assets in your portfolio happen to take a turn for the worse. Diversification is even more important during periods of high inflation and rising interest rates.
Explore your options
The need to invest your money wisely is greater than ever, and this often requires looking beyond the obvious. The good news is that more asset classes and investment options are available than ever before. You’ll want to look at both active and passive long-term investment options, bearing in mind all of the points mentioned above.
A great option to consider is eToro’s Smart Portfolios. These ready-made portfolios are created by a team of experts, each with its own investment strategy based around a particular market theme. Smart Portfolios are a convenient and diversified way to access major market innovations and trends shaping our world today, without paying portfolio management fees which many brokerages charge.
Smart Portfolios also utilise what is known as dynamic asset allocation, which combines active and passive approaches to offer the best of both. The composition of the portfolio — including which assets are in it and in what percentage — is reevaluated from time to time in response to what is happening in the markets. All of this is done automatically for you, based on expert analysis and research, and without any additional charge.
Go with what you know (and always be learning too)
Each of us as unique individuals brings our own personal agendas and beliefs to every choice we make. Investment decisions are no different, and in fact, investing in the companies, products, and trends you believe in can be a great way to maintain a portfolio that works for you.
Warre Buffett, arguably one of the world’s foremost investors, famously said: “Invest in what you know.” It’s pretty good advice, considering that one of the most common mistakes investors can make is getting involved in investments that they don’t know enough about.
Here too, Smart Portfolios can be a great option, to invest in an industry or trend that you are already familiar with, for example, electric vehicles, the oil industry, the cryptocurrency market or European economics. Known as thematic investing, assets are bundled together in a way that is similar to how many exchange-traded funds (ETFs) work — in fact, more investors are interested in trends rather than a single asset, and are putting their money in thematic ETFs more than any other type. Research shows that although they comprise less than 2% of assets, thematic ETFs account for 6% of revenues and have taken in more flows over the past three years than all other sector ETFs combined.
And, finally, always be actively enhancing your financial knowledge, which will allow you to have a better understanding of the investment world. Stay up to date by reading the news feeds of stocks and other assets that you are invested in. Be sure to check out eToro’s free Trading Academy, a valuable resource with courses, videos, tutorials, and more for every level of investor.
Stay calm and carry on
Changing market conditions may certainly require us to rethink our investing strategies — but panic and fear can lead to unwise decision-making. Learn to invest smarter, and then let Smart Portfolios do the rest for you!