So, if you’ve been paying attention to the news recently you probably know that the markets have been taking hits due to fears about the spread of the Coronavirus (2019-nCoV). What should you do?
Step 1, don’t panic.
Markets sell off all the time. Since 1930 the market has gone up an average of 10 percent every year. It WILL recover. Your losses are only on paper until you sell.
Step 2, turn off the news.
It’s their job to scare the bejesus out of us. It makes for great television and even better ad revenue.
Step 3, educate yourself on the best ways to hedge your investments against market volatility.
What can you do to limit losses? Short answer, diversify.
If money is leaving the stock market, it must be going somewhere. Right now, interest rates are very low, so most investors aren’t looking to keep large amounts of money in savings accounts. People are still investing, but where is the smart money? Here is a list of some safe havens for your money during a market selloff:
Gold
The price of gold usually moves inversely to the performance of the stock market. Investors have long considered it a safe haven in times of market uncertainty. So how do you invest in gold? Most investors will either buy shares of gold mining companies or Gold ETFs (exchange traded funds). Having gold as part of your investment portfolio is a good way to offset downward market swings.
High Yield Savings Accounts
Most common savings accounts pay very little in the way of dividends. Most are so low; you lose money to inflation. But high yield savings accounts pay substantially more than the average account. No, you will not get rich by keeping your money there, but since it’s tied to the Fed Rate, it will keep you in line with inflation so you wont lose any money while figuring out what investments you want to pursue.
Debt Securities
When companies or governments need to borrow money, they issue bonds and sell them to investors. Bonds pay the face value plus a guaranteed interest rate. While typical bonds pay far less than what one might get from a high performing stock, they are a safe investment with guaranteed returns.
Real Estate
This can be either a physical investment, or an investment in REITs (real estate investment trusts). REITs are companies who fund real estate ventures through money received from investors. The profits are then distributed to the investors and/or used to fund new projects. During sustained market downturns, the Fed tends to lower interest rates to spur economic growth, which is good for real estate, making this a good addition to your overall portfolio.
Be sure to speak with your Financial Advisor BEFORE making any rash decisions during a market downturn. When you have a well-balanced portfolio, market volatility is nothing to be afraid of.
