Bear markets are included. They’re part of market cycles, but diversification can help keep you on track when stock markets go down, Tezcan Gecgil writes at InvestorPlace.
During a bear market, investors may seek protection in various asset classes. Gecgil gives 7 tips that can help you make profits in a bear market.
- The well-known Blue Chip companies
- Health, where spending continues to rise
- Commodity prices are historically high
- Real estate offers security
- Utilities benefit from steady growth and above-average dividend yield
- Propagation with and in cryptocurrencies
- Art as an alternative
A strategy for difficult times
It looks like Wall Street is preparing for a bear market. Growth stocks, which were so popular during the pandemic, and large caps are not immune either. The S&P 500 Index is down more than 13.5% so far this year, while the Nasdaq Tech Index is down more than 21.5% in the same period.
Macroeconomic headwinds are accelerating and, following the latest rate hike, equity market uncertainty has increased further. Over the past century, there have been more than 25 bear markets, most of them lasting less than a year. Panic selling in a bear market often leads to a loss of potential profits and even investment capital.
But: after the rain comes the sun. That is why it is important to have a good strategy. It is easier to weather a storm if you are well diversified and invest for the long term. Therefore, investors look for alternative investment options to diversify.
Here are 7 ways to do it.
1. Green light for Blue Chips
Blue chip stocks are the valuable companies on the stock market. They are usually companies that have been known for decades, with a large market capitalization and a rich business history.
Most Dow Jones companies are blue chip. If you’re looking for a dividend, blue chips are definitely on the radar. Sustainable dividends give stocks a certain stability. The Dow Jones is down about 10% so far this year, but that’s less than the S&P500 and the Nasdaq. The drop could even represent a buying opportunity. Gecgil has some tips, like IBM† Pfizer Y Walmart†
2. Health care prospects are healthy
In times of recession, defensive actions come into the picture, such as health care. It is a sector that is quite resistant to market downturns. The outlook is also favourable, as health care spending continues to rise due to an aging population.
Global spending on pharmaceuticals is projected to have risen to more than 10% of global GDP on average by 2030. In addition, vaccinating young children against Covid-19 is being considered. Moderna has already filed for approval of its vaccine for that purpose, and Pfizer is expected to follow suit. Gicgel tips include: granny† Merck Y ThermoFisher Scientific†
3. Commodities are in a bull market
While a bear market for stocks looms, analysts believe we are at the beginning of a prolonged structural bull market for commodities. The World Bank points to the impact of the Russian invasion of Ukraine on this market. Changes in global production, trade and consumption patterns could keep commodity prices at historically high levels through the end of 2024. Furthermore, these high commodity prices are further increasing inflationary pressures around the world.
Also read: Are we riding in a new supercycle in raw materials?
Crude oil is currently trading at $100 per barrel. And the Dow Jones Oil and Gas Index is up more than 45% since January 1. In addition, food products and fertilizers, which rely on natural gas as a production input, have also seen the largest price increases since 2008. For example, wheat prices are expected to rise by more than 40%, reaching an all-time high. in 2022.
Precious metals are also a known safe haven. Gold and silver, as well as copper, platinum, palladium, nickel, and zinc, perform well in times of market uncertainty.
Commodities not only provide effective protection against inflation, but also help diversify investors’ portfolios due to their low correlation with equities. For example, advice for exposure to the commodity sector is Archer Daniels Midland† barrick gold† Newmont† Rio Tinto† McMoRan Freeport Y bhp†
4. Real estate is true
Investing in real estate is another option to protect your savings from inflation or market volatility. It also ensures steady income over a long period of time.
Investing in real estate can be done in different ways. You can buy real estate for yourself or gain exposure through real estate stocks. The best-known real estate funds are, for example, Eurocommercial Properties (stories), Vonovia (households) and CTP (real estate logistics).
5. The utility of utilities
Utilities are typically the defensive and least volatile part of an investment portfolio. They provide electricity, natural gas, water and sewage services. Regardless of the economic cycle, these companies and their services are necessary.
Markets are often highly regulated. Investments are seen as stable, with low risk. Utilities are known for their modest but steady growth and above-average dividend yields.
Prospects for utilities have improved significantly in recent years, in part due to the transition to sustainable energy. As a result, significant investments are being made in the public services sector to achieve the global goals of decarbonising the economy. Examples of utilities are RWE Y EONbut also FED Y motor†
6. Cryptocurrency: volatile option to spread
2022 has been a rough year for crypto so far. The market is very volatile and bitcoin and ethereum face significant price declines year after year.
Analysts believe that many digital currencies will not survive long term. In this market too, diversification helps weather storms. Crypto investors should diversify their investments among major market leaders in digital assets, fast-growing new cryptos, non-fungible tokens (NFTs), decentralized financial currencies, and stablecoins. Regular investment also helps average out the purchase price.
7. Art as an alternative
An alternative form of investment can be found in the art market. Art prices show a low correlation with other asset classes and art can outperform the stock market during a bear market.
Art also serves as a store of value in periods of high inflation. With the increase in the number of wealthy people around the world, the prices paid for works of art can skyrocket. Deloitte research suggests investments in art could increase in value by more than 40% by 2026.
Also read: Boring becomes sexy again: stable companies for turbulent times