The economic shock of the coronavirus pandemic has left everyone with many questions. Restrictions placed on movement and on businesses has resulted in layoffs and skyrocketing unemployment claims.
Just last week the UN’s International Labour Organization predicted 1.6 billion informal economy workers could suffer a “massive damage” to their livelihoods and that the equivalent of 305 million full-time jobs will be lost this quarter. This uncertainty has resulted in stock market reactions that have been difficult to predict.
Hence,the economic climate means it is critical to take sensible financial actions when it comes to potential investments. Here are a few tips to help you avoid short-term risks:
Invest in right asset classes
The issue many investors are facing is that their traditional choices may not be sensible anymore, and there is a lot of confusion over what the value of their currency will be. Given the extremely high rate at which countries are printing money, the value of currency will decrease as inflation increases.
The price of oil dropped to nearly “zero” and Saudi Arabia has tripled its VAT from 5 per cent to 15 - meaning investors are understandably sceptical about investing in this commodity. On the flip side, the real estate industry in Dubai has experienced a decline in price per square foot over the last few years, while other cities have seen an increase in values over the same period.
It is highly unlikely dividends will be paid on many stocks. Rental income is one potential solution, especially for those who are reliant on an investment that provides a monthly or quarterly income.
High vs. low risk
If you want a safe bet, precious metals are better than cash in the bank. If you are a long-term investor, then you should look at investing in blue-chip companies. These high-value companies tend to survive even through turbulent times and are the most likely ones to recover fastest after the impact of the pandemic.
If you are willing to take some long-term relatively high risk, then aviation and hotels could be considered an investment option as it is likely that these industries will eventually recover.
The financial crisis of 2008 gave birth to some of the biggest brands including AirBnB, Uber and WhatsApp, and it is likely that we will see a number of new ones emerge. Look at the discounted investments you can make; lots of companies have lost 10-20 per cent of their share value.
What matters is that you get in and once the stock price starts to climb again, you will benefit. Other emerging industries to note are telehealth and remote working platforms.
Review financial goals
Most people get their retirement planning wrong; they rarely save enough and always have a desire to pay their mortgages off. My advice is this: interest rates on mortgages are incredibly low. So, do not pay the mortgage off but instead invest that money long-term as it will almost certainly outperform the short term cost of borrowing.
Even for highly experienced investors, it is difficult to know when to buy at the lowest price and when to sell at the highest. If you are a long-term investor, holding on to your investments, even during a crisis, has generally been an intelligent strategy assuming that your financial goals remain unchanged.