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The Covid-19 pandemic is not just resulting in great costs to life and health, it has sent economies around the world spiraling downwards in a matter of just weeks. The International Monetary Fund’s April World Economic Outlook projects global growth in 2020 to fall to -3 percent. Stock markets around the world have seen immense value being wiped off the books.
In such an uncertain situation, it may seem strange to consider diving into the market when most investors are fearful. But as Warren Buffett famously said, "be greedy when others are fearful!" Buffett’s secret is to take a long view of investments. He knows that the economy will bounce back, because stock markets have survived the 1919 Spanish Flu epidemic, the Great Depression, World War 2, the 2008 financial crisis, and other crises. As such, a key strategy for Buffett is to invest during bear markets because life will almost certainly return to full normal in a year or two.
So where do you start?
A good place to consider is the eToro social trading platform. eToro makes online trading and investing accessible to anyone, offering short-term options for day traders and long-term options, such as its innovative CopyPortfolios, for investors. CopyPortfolios give you the opportunity to mirror the investment strategies of the world’s leading financial analysis companies and top performing institutions.
CopyPortfolios are fully-managed thematic portfolios tailor-made for serious investors looking for diversified investment products. CopyPortfolios allow you to invest in a group of assets, including cryptocurrency and traditional fiat trades. Each CopyPortfolio is bundled into a single portfolio and regularly optimised by machine-learning algorithms executing a predetermined market strategy aimed at long-term double-digit return.
So, what are the things you should be investing in during the economic downturn?
The first and most important investment you should make is in yourself. In our volatile world, you run a higher risk of losing your investments if you are not well-informed and well-prepared. You wouldn’t drive a car or even use a toaster oven without learning how to operate it first. Likewise, you should also prepare yourself with all the knowledge and skills you need to better secure your financial future.
As leadership guru John C. Maxwell said, “growth doesn’t just happen.” You need to intentionally plan and invest in your growth. Even spending just 10 minutes a day to learn can help you gain new knowledge that will help you maintain your competitive edge. Take time to read and talk to people who are successful. Keep up with the latest developments in industries and markets. Enrol in courses.
eToro’s social features have democratized financial knowledge. Now anyone who puts in the time and effort to study markets, and build a solid trading and investing strategy, can potentially become successful. Investors on the eToro platform often share their knowledge with other investors. Additionally, eToro has several courses and learning opportunities so investors can increase their knowledge and skills in trading.
2. Basic-need goods and services stocks
Not all industries face doom and gloom during downturns. Life still must go on and people still need to spend on medical care, household items, electricity and food during an economic recession. Stocks of companies serving essential-needs sectors normally do well during bear markets (even though they may seem dull during the good times). So, consider parking your money in these “‘safe” sectors during uncertain times. This will give your portfolio some much needed stability and security.
One sector to watch is e-commerce. E-commerce has revolutionised consumer buying behavior, completely disrupting the retail sector. Lockdowns around the world due to the Covid-19 pandemic have pushed even more retailers to open online stores.
The eCommerce industry includes many corollaries, including payments providers, international shipping services, cybersecurity companies and others. However, eToro’s ShoppingCart CopyPortfolio (e-commerce) aims to give investors focused exposure. As such, it only comprises “pure” retailers, be they direct online sellers or marketplaces. This gives investors access to an equally weighted portfolio, with exposure to one of the most revolutionary aspects of shopping in one convenient click.
3. Dividend stocks
Putting your money in dividend stocks is always a good way to inject stability in your investment portfolio. They are usually well-established companies that provide regular payouts to investors, giving you a stable source of passive income. Investors can potentially gain two sources of return: regular cash dividends and capital gains.
A great thing about dividends is that they can't be faked. A company pays dividends when it is in a strong financial position. These cash payments are also unlikely to stop even during difficult times. Identify high-quality companies that are able to consistently increase their dividend payouts and increase total return over time.
eToro’s DividendGrowth CopyPortfolio offers investors exposure to a broad range of dividend-paying companies. This portfolio allocates high-quality companies which have exceptional dividend-growth track records for at least 20 consecutive years. The companies are screened and optimised to create a final allocation of the top 40 assets based on the following attributes:
Market cap – Financially stable and solid companies
Beta – companies with low market volatility
5-year dividend growth average - looking at consistent medium-term dividend growth
Previous year dividend yield - looking at short-term dividend performance
4. Value stocks
During hard times, anxious investors exiting the markets may result in stocks of stable companies trading at bargain prices compared to the actual performance and value of the company. Smart investors capitalising on these market opportunities could potentially reap great rewards when it emerges from its undervalued position. However, for a value stock to turn profitable, the market must change its perception of the company so be prepared to wait for it to happen.
eToro’s BigTech CopyPortfolio comprises leading companies from the technology sector from smartphones to smart cars. It provides investors with diversified exposure to fields such as telecommunications, entertainment, e-commerce, and software solutions. This portfolio allocates 25 of the world’s leading tech companies by market cap. Each selected asset is weighted according to its contribution to the total market cap value of the entire portfolio.
With stock markets around the world taking a beating due to the on-going Covid-19 pandemic, investors are scrambling to find investments to weather the storm. Some people believe that there are compelling reasons to consider crypto a safe-haven asset.
One is that many central banks are supporting economies by pumping cash into the system, increasing the risk of inflation when the economy recovers in a year or two. Since cryptocurrencies are decentralized currencies that exist outside the reach of central banks, they can be a hedge against inflation and currency devaluation risks.
Cryptocurrencies are also the only asset class in the world that is truly uncorrelated, which means its value is not affected by the same factors as the stock market. This offers investors risk factors that are completely unrelated to the systematic risks that every other asset faces. It is literally in a class of its own. As such, having cryptocurrencies in your portfolio can be a good risk management strategy especially during a global recession.
As cryptocurrencies become increasingly popular, a growing number of investors consider them to be a viable investment option. eToro’s CryptoPortfolio is a managed portfolio providing diversified exposure to leading cryptocurrencies that are more likely to reach adoption in various industries. The weight of each asset within the portfolio is decided proportionally, according to the size of its market cap, with a minimum of 5%.
Conclusion: Market downturns presents smart investors great opportunities
Whether you are a seasoned or a new investor, it’s always good to have the right tools within reach. eToro’s CopyPortfolios can be especially useful during economic downturns because their thematic approach to investing can help traders diversify their portfolios, minimize long-term risk, and take advantage of current market opportunities.
eToro is a publishing partner of CoinGecko
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