Investors can become fixated on certain markets or asset classes, particularly if they achieve high returns, but given current global uncertainty, diversification is vital to ensuring that risk is properly spread across a range of markets, asset classes and regions. As the 2008 recession proves, by putting too much focus on one market without proper consideration for its debt load – e.g. the housing market and sub-prime mortgages- investors can cause financial ripples that lead to global repercussions.
With major social and political issues such as the US/China trade war, Donald Trump’s poor political decisions and the UK’s continuing Brexit debacle, there is serious concern that recession could be on the cards for some of the world’s largest markets, which has the potential to lead to a global recession. The International Monetary Fund has shown that global financial activity is weak and has downgraded the outlook for many countries as a result.
All of this means that, now more than ever, investors need to explore options to safeguard their portfolio from the effects of a global recession. One of the best ways to achieve this, as Tom Stevenson from Fidelity International recommends to the Financial Times, is to have a well-diversified portfolio. This will help you to spread your risk and ensure that should one area of the financial market take a hit, other parts of your portfolio will be safe, reducing your financial loss.
Many investors currently focus on the stock market, but there are many other markets with a diverse range of investment options that savvy investors can use to spread their risk, thereby ensuring that should a recession occur you’re prepared to weather the storm and come out with most of your hard-earned capital.
The Real Estate Market
Whilst it was the housing market that caused the 2008 recession, this was predominantly because of poor decisions made by investors and the selling of sub-prime mortgages that were designed to be defaulted on, as such there’s no reason to be afraid of investing in the real estate space. If you use your initiative, you can achieve strong returns in this diverse market. It can be costly and time-consuming to flip properties or manage a large portfolio of rentals, so consider a reliable real estate broker such as McKenney Investment Properties, who have an extensive portfolio of real estate properties that you can invest in without having to undertake the hard work and hassle of managing properties yourself.
The Reinsurance Market
Designed as a way for insurance companies to spread the financial burden of any major disaster, reinsurance revolves around a client paying for insurance, then the insurance firm sharing the money, and the risk, with a selection of additional companies. Should a disaster occur there is some risk for the parties involved, but generally reinsurance is a great way to enjoy a regular income from an investment. Usually invested in through funds, reinsurance is a popular alternative investment class, so consider finding a fund that will offer you reinsurance investment options for your portfolio.
The Forex Market
The foreign exchange market sets currency prices around the world, and over recent years it has become incredibly popular for large hedge funds looking to make money through predicting the actions of leading financial regulators and central banks. This decentralised market is notoriously challenging for inexperienced traders, so it’s important to work with a broker that suits your needs, level of experience and trading style. Finding a broker that’s right for you is made easier by using a comparison platform like FXScouts, which provides detailed reviews of the world’s most respected brokers as well as education for new traders.
The Bond Market
Investing in debt is a great way to create long-term returns, so the bond market is ideal for investors looking to create a combination of long and short-term investments in their portfolio. You can choose between the primary market, where you invest directly in bonds themselves, or you can buy debt securities in the secondary market. Whilst some in the financial world believe that the bond market is challenging for those looking to make adequate returns, it could also be argued that bonds offer a stability other assets cannot due to their long-term nature, and if defaulted on some of the investment can be recouped. This is a challenging market designed for experienced investors, so work with firms such as Investment Advisors, Inc., who can provide you with the insight and support you need to achieve long-term results from your bond market investments.