Every market has its times of prosperity and times of struggle. With this information in mind, it is very important for investors to make plans for when the financial market is struggling to grow. There are numerous strategies that investors can utilize when the financial market is slowing down. These strategies will allow an investor to retain a safety net of funds while continuing to grow financially through the economic downturn.
Build Up A Cash Reserve
An investor should always do their best to plan for the worst. Whether it be for an investment gone bad or for a changing financial situation, an investor should have a pre-determined amount of cash secured. This cash supply will provide an investor with security in the event where their cash flow is slowing down or has ceased completely. The extra cash will also be very useful for when additional investment opportunities appear during turbulent markets. The investor will be able to purchase a variety of investments at a discount when other investors are selling their investments to survive the economic downturn.
Much like building up a cash reserve, an investor should preemptively diversify their investments in preparation for turbulent markets. There are many investments, like commodities, that have reputations for doing well when the financial market is struggling. Building an investment portfolio with these investments will create a balanced portfolio that can continue to grow when other investments in the portfolio are not doing well as a result of the market.
The simplest method that an investor can use to diversify an investment portfolio is purchasing either mutual funds, index funds, or exchange-traded funds (ETFs). These funds already have diversification built into them and contain a variety of different investments across various sectors. Depending on the funds that an investor chooses, the investor’s portfolio will continue to grow along with the struggling financial market. It is important to note that investing in many of these funds will decrease the returns that an investor sees in their portfolio. This is due to the fact that most mutual funds, index funds, and ETFs are put together by another party. The parties involved with constructing these portfolios tend to charge small commissions or percentages for their services.