In the current environment, how to keep your assets value-added.
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Editor’s note: We are witnessing history. Negative interest rates, negative oil prices, and multiple short-term meltdowns of US stocks … Our previous investment knowledge also needs to be updated in real time. Hedging assets may no longer have the function of hedging, and liquidity has become more and more More important. In the investment field, there must be no shortcuts. If you want to rely on shortcuts, the money earned by luck will eventually be lost by your own ability. What we can do is learn more, invest less, and only buy things that we can understand and grasp. This article is translated from Medium, author Tim Denning, the original title is “The Way You Invest Your Money Has Been Turned Upside Down”, I hope to inspire you.
Image source: Image Credit: Getty Images
We are witnessing history. The financial world we are in now looks like this:
Negative interest rate
Negative oil price
Negative yield bonds
Economic downturn and US stocks rise
Business bailout
Bulk printing
With the advent of this strange era, it is necessary to re-understand investment opportunities. The following are the issues you need to consider when investing now (not financial advice).
safe-haven assets are not so safe
Gold and some digital currencies are generally considered safe havens, and you can count on them to at least preserve their value and perhaps appreciate it. But now the situation is different, gold in the 2008 recessionIt performed well, but this time it was not.
New digital assets should have inherent inflation, but as investors have withdrawn, these assets have suffered huge losses.
In terms of investment, what is the risk-averse investment method needs to be redefined.
Currency will depreciate
When the government prints money to provide funds for corporate bailouts and provides a barrel of money to the market in the form of stimulus, it will have a long-term impact on society.
A small amount of money printing will not have a substantial impact. Now, taking the US government as an example, it has printed more than $ 6 trillion. In 2008, the state spent as much as 800 billion dollars on saving American banks, but in the current economic recession, 800 billion dollars is only a small amount of money.
The dollar may depreciate, which will also affect other currencies, but if you put money in a bank account, the value of the money may be affected.
Making money with money is a way to fight against depreciation. Simply put, investing your money in assets that can generate more money can help you get guaranteed. The assets I invest in are my business. For other investors, they may be real estate or dividend-paying stocks.
You need to consider how the currency devaluation will affect you.
It ’s important to maintain “liquidity”
“Liquidity” in financial terms refers to the ease with which assets such as stocks, bonds, commodities, or real estate are sold. Liquid assets are assets that can be easily converted into cash when you need them.
Image source: Photo by Avel Chuklanov on Unsplash
This recession tells us that when everyone wants to sell the same thing, such as oil, the price will fall rapidly, and even fall to a negative value due to the burden of storage.
Real estate is an example of non-current assets. It takes time to find a suitable buyer. During the recession, you will find that many people like you also want to sell their properties, but the number of buyers is decreasing, which ultimately leads to a decline in sales prices. If this happens, assets that are easier to sell become more attractive.
Recognize bonds
People have always believed that government bonds (the money you lend to the government, they will pay you interest) are the safest assets you can have. Professionals will advise you to invest in bonds during periods of economic uncertainty.
But this suggestion is outdated. We now have negative-yield bonds. Others do n’t pay you interest, and you pay others interest. The value of these interest-free or negative-interest bonds is rising. why? Because investors believe that their non-interest-bearing bonds will be bought back by the Fed, they believe that despite the low yield, bond prices will still rise.
Lending money to the government was supposed to be a safe way, but now it has become a game of drumming and passing flowers.
Leverage is a new nightmare
The current economic downturn shows investors how important it is to have buffer funds in case things get out of control temporarily.
When you have no money to allocate off-site, your only option is to sell your assets in a sluggish market and get less money to make up for your losses. This is the result of using leverage.
Leverage means that investors borrow money to invest.
They may take out their own $ 20,000 and then borrow an additional $ 40,000. Then they have $ 60,000 to invest.
During the market’s upswing, borrowing money to invest is very good and can make you earn more. However, if it is during the market downturn, you may not be able to escape the “margin call”. When your asset value is below a certain threshold, the bank where you borrowed money will ask you to use more money to fill your investment account. If you do n’t have the money to make a margin call, you may be forced to close your position and eventually your assets will be sold at a lower price.
Many people keep communicatingInvesting by borrowing money, because borrowing money can make them get a greater return in the investment process.
In a highly volatile market, leverage may be an issue. If everyone faces the problem of being unable to make a margin call and having to sell their assets at the same time, asset prices will fall faster.
Having buffer funds is the key to protecting your assets. Too much leverage will cause you more pain.
There is no shortcut to investment
No matter what others say, in this upside-down financial world, there are no shortcuts to investing. In such uncertain times, all you can do is to spend money carefully and not take too much risk.
Everyone’s ability to withstand risks is different, and everyone’s financial situation is different. The key now is to manage your own psychology and not be overwhelmed by the recession.
Continuous learning, watching the changes, or making small investments is very good. Don’t be too greedy, and spend all the hard earned money.
The current financial market may make you foggy. There is no shortcut to investing. Keep learning and control your own hands. In terms of investment, it ’s good to slow down.
Translator: Jane
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