The COVID-19 pandemic has caused major volatility on stock and FX markets. Moreover, it has led to a global economic recession. The entire planet’s economy is in a state so bad, it’s compared to the Great Depression.
It’s no surprise that investors are wary, as many of them have already suffered significant losses. Many people believe the worst is yet to come, which indicates the recession may last longer than expected. Already bond yields are at an all-time low, and investment opportunities are dwindling as more businesses go bankrupt.
Any investor who wants to make it through this challenging period without losing their fortune entirely must reevaluate their portfolio. Making changes is essential, and you may need to do it fast.
Impact of the COVID-19 Pandemic on Stock Market Volatility
For investors, March of 2020 will forever be associated with a spectacular stock market crash. The Dow Jones suffered its biggest sharp loss of points in history. The global stock market has been volatile ever since.
The situation is getting better in some industries as many economies are restarting. However, the overall volatility level remains high.
What’s worse for investors is that some of the traditionally “safe” options used to secure one’s fortune during an economic recession are failing. Yields from treasuries are almost at 0% now, and these numbers will persist for months to come. Even if the economy starts recovering, it will take a very long time to work off the damage of the coronavirus crisis.
And there is also a risk of the second wave. Therefore, more economic problems may be on the horizon.
Investing in real estate is traditionally believed to be a good option in a crisis. However, at the moment, the real estate market is extremely volatile. Real estate, hospitality, and entertainment stocks have all crashed, and they barely show any signs of recovering.
Travel restrictions, social distancing, and other measures in place to contain the pandemic have basically put global travel on lockdown. Paired with domestic economic problems and increasing unemployment rates, it’s likely the real estate market will continue to weaken.
That said, an investor now needs to look into the few opportunities that are somewhat safe from the global volatility. You should start by studying a detailed fixed income comparison.
Evaluating the options you have and how you can divide your investment funds to cover more of them is especially beneficial when we think about diversification. Portfolio diversification is imperative now when every market is under threat of volatility.
Best Low-Risk Investment Options for Today
High-Interest Savings Accounts
Recently, online banks have grown much more popular. One of the main reasons is they offer much higher interest on their savings accounts compared to traditional banks. Usually, you’re lucky if traditional banks offer you a 1% interest on your savings account. In contrast, some online banks offer more than 2%!
Better yet, the risk level with such accounts is minimal. Of course, it’s only valid if you use the services of a reputed and certified online bank. Therefore, choose wisely and be sure to check the business’ registration, certification, and other relevant paperwork.
Keep in mind, many of these online financial institutions are not regulated the same way as traditional banks. Therefore, you need to check if the FDIC insures the accounts of the online banking institution.
The FDIC is what ensures and guarantees the safety of your fortune in regard to the banking industry. Of course, the money in the account will be tied up and only earning around 2% in interest. Therefore, you will need to use parts of your fortune for other investments to make sure you stay ahead of inflation and continue to build wealth.
Note that some banks today offer savings accounts that allow you to take out the money anytime. However, those usually have lower interest rates.
GICs (Guaranteed Investment Certificates)
GICs are another type of fixed income investment similar to savings accounts. It usually offers a higher yield than the traditional savings account interest, but not by much. However, in the case of GICs, the money will be untouchable until the certificate runs out.
According to Bloomberg, GICs are considered to be very safe because they are covered by insurance. However, you need to remember that their yield may only be slightly above inflation. They don’t provide significant returns in a recession, but they make it impossible to use the capital invested until the time period is met.
Therefore, the best strategy is to keep part of your money liquid for riskier ventures that have a possibility for high returns. While you’re waiting for the perfect opportunity, it will remain safe and accruing interest, even if it’s only for a small, yet stable, return.
Low-volatility ETF funds, in general, are riskier than other traditional investments. However, they might bring a higher yield. With more risk comes the possibility of more reward. Keep in mind that even though a large portion of the economy is struggling, several areas are thriving – such as food delivery services.
The energy sector is moderately stable. But individual sections of technology and healthcare industries are booming. Therefore, a strategically placed investment in these sectors can produce significant returns for a relatively low risk.
There are specialized low-volatility ETF providers that can help you with this investment. However, individual ETF investments need to be separate from your retirement account.
Think of purchasing specific ETFs as being reserved only for gambling money. The money you can afford to lose but hope to win big with. Always remember that individual stocks are much more volatile and unstable than a pool of stocks like an index fund. Therefore, you need to think carefully about how much of your fortune you want to use for these risky investments.
Corporate bonds are only as safe as the corporation you invest in. A basic survey of the market shows that some companies fare well despite volatility. Johnson & Johnson, Walmart, and Microsoft are some of the more well-known examples.
Investing in giant companies can be a wise move because even with the risk, the potential for good returns is very high. This doesn’t even take into account the companies that reward their investors via dividends.
Moreover, during times of recession, you might get a chance to buy usually expensive stocks at a more affordable price.
The question of where to invest your money during the COVID-19 pandemic has become prevalent fast. However, an investor must look to not only grow their wealth, but also protect it in times of uncertainty.
You need to think long-term if you want to keep that same fortune. Therefore, while investing in rapidly-growing tech and healthcare industries seems good, you also need to secure some of your investment. Investing in low-risk stock as well as high-interest savings accounts can be an excellent way to go.
Diversify your investment portfolio across all investment options to minimize your risks and maximize your potential for significant returns.