Important Strategies for Investing in Times of Crisis
1. Stay Invested and Avoid Trying to Time the Market
It may be tempting to convert everything to cash during uncertainty. However, studies show that those who stay invested during crises come out ahead in the long run. For instance, an investor during the last recession who held onto investments rather than shifting to cash would have earned over $340,000 more (Vanguard). The largest gains often occur in short periods – not missing these is crucial.
2. Diversification of the Portfolio
A wide spread across various asset classes (stocks from different sectors, bonds, commodities, etc.) minimizes the risk of total loss from individual events or sector crises. Investments with low correlation to the stock market, such as gold or structured notes, can also help.
3. Regular Investing (Cost-Average Effect)
By making continuous purchases, you smooth out your entry prices over the long term and reduce the risk of poor decisions through market timing.
4. Keep Cash Reserves for Short-Term Opportunities
A liquidity reserve allows you to respond flexibly to strong price fluctuations and buy at good prices.
Using Counter-Cyclical Investing as an Opportunity
Historical examples show that those who invest counter-cyclically – that is, buying when others are selling – can seize great opportunities (e.g., after the stock market crash in 2020 or the financial crisis in 2008). Stock market guru André Kostolany said: “Buy when the cannons thunder.” This strategy requires courage and discipline.
Making the Portfolio Resilient Against Shocks
In addition to diversification, it is advisable to use investment forms that provide protection against market turbulence:
- Gold: Proven as a safe haven during geopolitical tensions.
- Hedge Funds & Structured Products: Can exploit or cushion volatility.
- Flexible Asset Allocation: Regularly reviewing the portfolio for risk appetite and goals helps make adjustments.
Conclusion
Even though concerns about a potential US default are legitimate and many investors are uneasy: With a disciplined strategy of long-term investing, broad diversification, and the targeted use of hedging instruments, wealth can be protected and even strengthened during uncertain times. Patience and a clear plan are important – this is how you successfully navigate crises.
These approaches offer valuable guidance for all investors in light of current geopolitical risks and high U.S. national debt.