With the collapse of cryptocurrencies, the rise of inflation, and a volatile global economy making waves, investors and entrepreneurs are looking for ways to make solid investment decisions for themselves and their companies. You may be looking for ways to grow your investments, with a little extra reassurance that your strategies will do well.
A great investment strategy can free your time and attention to other important aspects of your life, like spending time with family or getting your company through the challenges brought by the pandemic and economic rough waters.
It’s essential to ask advisors, read everything financial that you can get your hands on – and talk to people about investments. These days people don’t seem to want to discuss options but in a downturned economy you can’t afford not to have some lively discourse of opposing views. The more experience you can get from hearing others’ stories of financial highs and lows, the better. It’s a way to stop inventing the wheel yourself.
You’ll still do your due diligence with every suggestion you hear or investment you determine is right for you, but you’ll have a clearer head if you have talked strategy, ideas and options with several different individuals and financial advisors.
Of course, no one knows everything in the money making field. Remember the adage not to place all of your financial eggs in one basket.
There are a few strategies you can consider in an uncertain economy that can help you protect your assets, manage risks, and grow your capital.
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All investments come with some degree of risk. Even if you bury cash under a rock, there’s no guarantee it will be worth anything when you dig it out again (with inflation climbing the way it is, it will likely lose value). You certainly won’t build wealth with that approach. Ideally, your investments should be earning something for you and not sitting under a rock — but the more aggressive your investment strategy, the more risk you’re likely to take on.
The key to managing risk is to identify your risk tolerance and determine which investments fit with your goals and your capacity to take some chances. If you’re planning to cash in your investments in 10 years, you’re going to be more risk-averse than if you have 20 or 30 years to wait out market corrections.
If you are taking on higher-risk investments, like investing venture capital in a new startup or joining an investment group, you’ll want to take steps to ensure your funds are as protected as possible. Lifestyle investor Justin Donald, says, “As you practice and get better at your deals, you will also get better at minimizing risk. You have to start building up your knowledge and have resources to help you invest.”
A diverse investment portfolio naturally helps you mitigate risk and increase your chances of growing wealth by keeping your funds spread across different instruments that are not all affected by the same economic forces. Anyone who had a solely cryptocurrency portfolio a year ago is in a much worse position than someone who may have had cryptocurrency with a mix of other investments from real estate to stocks.
There are many investment types, from shorter-term options like mutual funds and volatile stocks to mid- and longer-term options from stocks and bonds to real estate.
Whatever your goals as far as investment length and your willingness to take on risks, it’s important to take the time to thoroughly research your options before jumping in.
Don’t dump thousands into crypto or a specific company on a whim. Do enough digging, reading, and asking questions of your financial advisor (and others) to assess the future of your money in terms of the investment’s stability and likelihood of success.
Conversely, it’s important not to panic during a downturn. Market corrections can be nerve wracking as you watch your funds lose value rapidly. But if you aren’t in a hurry to liquidate your assets, you’ll likely see the numbers climb over time.
Just as you should carefully evaluate your needs and research potential investments before throwing your funds into any investment instrument, you will want to monitor the health of your portfolio over time and reassess your strategy as needed.
While you don’t want to make decisions about your portfolio based on emotion — especially during a panic — you will want to decide whether to shift around your funds based on whether your goals and risk tolerance have changed since you made your choices. You’ll want to check whether the forecast for your investments — particularly in individual companies — is favorable. Where have you been and where are you going with your funds? A good financial advisor can help you evaluate your portfolio annually.
It’s also important to maintain the ability to liquidate some assets quickly in case of emergencies.
You will want to maintain somewhere between a few months to a year’s worth of cash to give you some financial stability and peace of mind if some of your portfolio begins to tank or your business struggles temporarily.
You can save this “quick-access” money on the side so that you don’t lose money while liquidating. Ensure that your bank and advisors understand your wishes in this area. State exactly how much money you want to remain liquid so that if you have to have the cash, you aren’t scrambling.
The keys to investing well during an economic upset are the same as always: evaluate your needs and your tolerance for risk, do your research, and diversify your portfolio as much as possible while making sure you have cash reserves to get through tough times.
And most of all: don’t panic.
Whether you’re planning for your retirement or your family’s future, Byline Bank’s Wealth Management team is ready to provide customized solutions for your financial needs. Get in touch.