The consequences of the coronavirus for the markets and the global economy cannot yet be fully predicted. The one thing that is certain is that market fluctuations on the financial markets have been extraordinarily high in recent weeks and months. This increased nervousness is reflected for example in low government bond yields, the weakening of the US dollar and a high price for gold – the popular “safe haven” in crises. The packages of measures taken by various central banks to support the economy are another factor influencing the financial markets.
When investors believe they are facing uncertain times, it is not easy for them to make the right decisions regarding their investments. But even in supposedly risky times, there are safer investments where the risk tends to remain lower. In this article we give you as an investor seven key pointers on how to deal with uncertain times.
1. Keep track
How should you as an investor invest your money in times of crisis? The answer is: it depends. If you have already invested assets, stick to the defined, long-term investment strategy wherever possible. In this way, you will avoid having to sell assets hastily and below the original purchase price. At the same time, this will allow you to benefit from a future market recovery. If you have freely available liquidity, there may also be attractive opportunities for increasing or supplementing existing investments. So the important thing is to keep track of the situation.
2. Consider bonds
The three goals of security, returns and liquidity are in competition with each other when it comes to investing money. Out of all the asset classes, however, bonds are considered to be a comparatively safer investment than equities, for instance, but at the same time offer higher yield opportunities than money market investments, for example. One option is bonds denominated in Swiss francs and with good debtor creditworthiness. If you diversify your portfolio with bonds in foreign currencies as well, you may also consider hedging the currency risk.
3. Focus on the long term, with possibilities such as shares
Even though bonds are usually lower-risk investments, equities should not be demonized, even in a more difficult market environment. In a crisis, you may feel corrections strongly, but when you look at a long-term time horizon, the stock markets show a clearly positive trend over the years. The longer your investment horizon, the higher the proportion of equities in your portfolio can be, as fluctuations can be balanced out and you can hope for a long-term upward trend in line with economic growth. Your patience will be rewarded with higher potential returns.
4. Check the diversification of your portfolio
Whether you invest your money in bonds or equities, a portfolio that includes the most broadly diversified asset classes and sectors offers greater protection – especially in uncertain times. If you invest in a diversified manner on the basis of your personal investment profile, you minimize the extent to which individual investments or asset classes within the portfolio can have a negative impact on your assets.
If you find it difficult to create a diversified portfolio yourself, you can opt for one or more investment funds. An investment fund is a selection of various stocks, bonds or real estate properties from different sectors or countries. You will find further information on the subject of investment funds here. Another option is to invest via an asset management mandate, which involves experts implementing and managing an investment strategy you have defined together. You will find further information on the subject of investment solutions here. Please also contact your UBS client advisor if you would like assistance.
5. Consider gold as a possible portfolio “stabilizer”
If you expect the uncertain economic situation to continue for some time, a gold investment is a possible option. As a precious metal it is a relatively stable investment and in times of crisis it can even increase in value, as demonstrated during previous periods of market turbulence, especially as a hedge. If you do not want to invest directly in the precious metal, you can also choose to invest your money in gold ETFs. For a long time, direct investment in bars and coins was the only way for investors to invest gold. Exchange-Traded Funds (ETF) now exist for gold investors. Gold ETFs track the gold price development one to one. To buy a particular gold ETF, all you need to do is enter the product name, the securities number and the number of units to be invested in the investment fund custody account.
6. Take a deep breath
Whether times are prosperous or uncertain, in principle it is always important for investors to stick to a long-term investment strategy. Otherwise, you run the risk of making adjustments in turbulent times that will result in losses. Especially if you are prepared to take a higher risk because you want higher returns in the long term, you should be able to withstand greater market fluctuations in the short and medium term. After all, crises can last for months. If you have the necessary patience, it will no doubt prove worthwhile.
7. Follow a solid roadmap, with UBS Wealth Way
Volatile financial markets and uncertain prospects for the economy are an inevitable part of an economic cycle. With the right roadmap, which offers sufficient freedom of action whilst also requiring discipline, you can make your assets more resilient. A target-oriented investment concept based on our “Liquidity. Longevity. Legacy.” approach will help you to define the right investment strategy in line with your needs and in any financial market environment. Thanks to good liquidity planning, your lifestyle and planned investments will not be threatened. This gives you the certainty that you have made the right investment decisions and can remain invested throughout the economic cycle.