Bear markets are included. They are part of market cycles, but diversification can help stay on track when stock markets fall, writes Tezcan Gecgil at InvestorPlace.
During a bear market, investors can seek protection in various asset classes. Gecgil provides 7 tips that can help you make money in a bear market.
- The well-known Blue Chip companies
- Healthcare, where spending continues to rise
- Commodity prices are historically high
- Real estate provides security
- Utilities benefit from constant growth and above-average yields
- Spread with and in cryptocurrencies
- Art as an alternative
A strategy for tough 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 has fallen more than 13.5% so far this year, while the Nasdaq technology index has fallen more than 21.5% over the same period.
The macroeconomic headwind is increasing, and after the recent interest rate hike, uncertainty in the stock market has increased further. Over the past century, there have been more than 25 bear markets, most of which last less than a year. Panic selling in a bear market often leads to loss of potential profits and even investment capital.
But: after rain comes sunshine. That is why a good strategy is important. It is easier to withstand a storm if you are well diversified and invest in the long run. Investors are therefore looking for alternative investment opportunities to diversify.
Here are 7 ways to do it.
1. Green light for Blue Chips
Blue Chip stocks are the valuable companies in the stock market. Often it is companies that have been known for decades, with a great market value and a rich company history.
Most companies in the Dow Jones are blue chips. If you are looking for dividends, the blue chips are definitely on the radar. The sustainable dividends give the shares some stability. The Dow Jones has fallen about 10% so far this year, but it is less than the S & P500 and Nasdaq. The fall could even represent a buying opportunity. Gecgil has some tips, such as IBM† Pfizer and walmart†
2. The health outlook is healthy
In times of recession, defensive stocks come into the picture, such as healthcare. It is a sector that is quite resilient to market declines. The outlook is also favorable as health spending continues to rise due to an aging population.
Global spending on medicines is expected to rise to more than 10% of global GDP on average by 2030. In addition, vaccination of young children against Covid-19 is being considered. Moderna has already applied for approval of its vaccine for that purpose, and Pfizer is expected to follow suit. Tips from Gicgel include: abbvie† Merck and Thermo Fisher Scientific†
Raw materials are at a bull market
While a bear market threatens equities, analysts believe we are at the beginning of a protracted 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 may keep commodity prices at a historically high level until the end of 2024. In addition, these high commodity prices increase further inflationary pressures worldwide.
Also read: Are we rolling in a new superbike in raw materials?
Crude oil is currently trading at $ 100 per barrel. barrel. And the Dow Jones Oil & Gas Index has risen more than 45% since January 1st. In addition, food and fertilizer, which depend on natural gas as production input, have also experienced the largest price increases since 2008. For example, wheat prices are expected to rise by more than 40% and reach the highest level in 2022.
The precious metals are also a well-known safe haven. Gold and silver as well as copper, platinum, palladium, nickel and zinc do 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, tips for exposure to the commodity sector Archer Daniels Midland† Barrick gold† Newmont† Rio Tinto† Freeport McMoRan and BHP†
4. Real estate is secure
Investing in real estate is another option to protect your savings from inflation or volatile markets. It also ensures a consistent income over a long period of time.
Investing in real estate can be done in different ways. You can buy real estate yourself or get exposure through real estate stocks. Well-known real estate funds are e.g. Eurocommercial Properties (shops), Vonovia (home) and CTP (logistics properties).
5. The utility of utilities
Utilities are typically the defensive and less volatile part of an investment portfolio. They provide electricity, natural gas, water and wastewater services. Regardless of the economic cycle, these companies and their services are necessary.
The markets are often heavily regulated. Investments are seen as stable with low risk. Utilities are known for their modest but stable growth and above-average returns.
The outlook for utilities has improved markedly in recent years, partly due to the transition to sustainable energy. As a result, significant investment is being made in the utilities sector to achieve the global goals of decarbonising the economy. Examples of utilities are RWE and E.ONbut also EDF and engie†
6. Cryptocurrency – volatile opportunity to spread
2022 has so far been a difficult year for cryptocurrencies. The market is very volatile and bitcoin and ethereum are facing significant price declines from year to year.
Analysts believe that many digital currencies will not survive in the long run. Also in this market, diversification helps to cope with storms. Crypto-investors should diversify their investments across major market leaders in digital assets, fast-growing new cryptocurrencies, non-fungible tokens (NFTs), decentralized financial currencies and stack coins. Periodic investment also helps to average the purchase price.
7. Art as an alternative
A form of alternative investment can be found in the art market. Art prices show a low correlation with other asset classes, and art may surpass the stock market during a declining market.
Art also acts as a storehouse of value during periods of high inflation. With the number of wealthy individuals growing worldwide, the prices of works of art may rise. Deloitte’s studies suggest that art investment may increase in value by more than 40% by 2026.
Also read: Boring is sexy again: stable companies in turbulent times