Investing During a Global Crisis
As a planet, we continue to be warned that we're living in unprecedented times. Truly this world has been battered by a pandemic, political and civil unrest and now talk of wartime preparations as the Russian invasion of Ukraine escalates.
While this is unprecedented for our generations, for the markets and investors this isn't the time to freak out. Warren Buffet's strategy is to search for the opportunities in the downturns and that's precisely how Bradford Financial Center approaches a global crisis...we wait and we invest.
Preparing Ahead of Crisis
To avoid the peaks and valleys of investing, you have to be prepared. This means having cash on hand to make the moves when they arise. When investors hear the news, they start to scramble and jump onto any bright idea that pops up. This is where Bradford's investment program, Watch and ManageTM comes into play.
This program works with specific indicators we have set uniquely for every client based on their goals and adversity for risk. When the markets turn south, it moves money to a money market fund and holds until the conditions are right for buying into good stocks at lower prices.
But let's first address some of the "word on the street" advice you might be hearing right now.
Gaga for Gold
There's a lot of rhetoric out there right now suggesting you should exchange your investments for gold and too many people hear this and jump on the bandwagon, but it pays to understand the loss leader gold can be.
Gold is not a good long- or short-term play in our opinion and here's why. When you buy gold, you're paying retail prices (you pay the retailer his fee) and when you sell it, you're selling at wholesale prices and that's the direct opposite of how winning investing should work. Too many people hold onto gold too long and lose. The best time to invest in any commodity is when the price is low - that's not the case now for gold which trades at $1,920/ounce (as of March 15, 2022). A year ago it was trading at $1,682/ounce.
It's not easy to use gold for purchases. From bread and eggs to fuel, the dollar is always king and you're better off having this on hand to swoop in and buy great stocks when their prices fall. (Again, an intuitive investment program like Watch and Manage is a smarter strategy.)
Cash On Hand
Recently we've been moving money. Selling some stocks and moving money into a money market where a dollar is always worth a dollar. It's here that we wait for opportunities such as buying stock in a good company that was worth $100 a share a month ago and are now worth less but their rating is such that buying now is going to provide a good yield when the market improves.
So whether it's a pandemic, high inflation, or a war, being in cash may be wise as you wait for an opportunity.
Gauging the Economic Situation to Diversify Investments
The way you make money in the market depends on what's happening in the world.
For instance, if you have a global pandemic it's worth asking, "who (what companies or sectors) is going to be affected and what industries are going to deliver solutions?" This is exactly what Bradford did and our investments in Pfizer and Moderna paid off.
At Bradford, we recently cleaned client portfolios and kept stocks that are still doing good in the current economic climate and haven't been adversely affected. We've moved those funds to FDIC-insured money market accounts. Our Watch & Manage clients' investments are 40-60% in safe havens now, waiting to take advantage of stock purchases where it's now two stocks for the price of one.
When economic situations happen, you have to react to them.
Consider Russia, a country that is a big producer of raw materials that the globe is pretty dependent on nickel, petroleum, potash. When you see that going on, you need to be diversified.
Brazil is 100% dependent on Russia for potash. Brazil is considered the breadbasket of the world and is the fourth-largest producer of food which fed 10% of the world's population in 2020. They need potash as an agricultural powerhouse. So now they are looking to the U.S. and Canada for this need creating an economic opportunity.
Oil operates similarly. It was formerly on the decline and now is trading over $100 a barrel. We're buying into the oil and gas sector companies that will have to fill that supply void thanks to Russia.
During a war, the defense sector presents an opportunity because the economic situation says the western world is going to shore up its defense and Congress recently approved even greater defense spending.
And that's what diversification looks like when we assess our economic situation instead of reacting to drops and spikes in the market. But you need to be proactive and have a program in place so that when the train comes you don't get run over by it, you simply step out of the way and get back in when the situation is right.
The best part is that you don't have to go it alone. Lean on a certified financial planner and advisory team that knows what they're doing.
Learn more about the Bradford Watch and Manage program. When you're ready, we're here to get you started with smarter investing.
This article is for educational purposes only and not to be considered specific advice meeting the needs of any individual. The views and opinions expressed are based on current economic and market conditions and are subject to change. Diversification is an investment strategy that can help manage risk within a portfolio, but it does not guarantee profits or protect against loss in declining markets. Investors must consider their risk tolerance and investment objectives to stay invested during down markets.