Economic risks are once again giving investors nightmares. Investors are wondering whether or not it is a good idea to make investments given the high instability of the global economic market. It comes as no surprise that nothing serves as a bigger deterrent than uncertainty and the current crisis enveloping the entire globe suggests that there is a lot one can be uncertain about. Macro risk is an aspect organically global in nature. With factors such as slower growth of the gross domestic product and increasing debt levels coming into play, it is obvious that macro risks in the economy are observing a steep rise.
If you think it is just Europe that is finding it impossible to retain its footing against the financial crises, it will surprise you that booming economies such as China are also having a hard time staying steady against economic disasters. Amid all the brewing controversies, the United States is one of those economies that are comparatively more stable than other parts of the world.
The persistently high unemployment rates and even slower GDP growth cast shadows of doubt as to how quickly one will be able to recover from economic calamities. While it is not possible to substantially avoid all the risks associated with global investments, some tips to help investors maintain a promising portfolio are briefly listed as follows.
Avoid Chasing Headlines
It is a common observation that the news making daily headlines is the driving force of markets and they are responding wildly in response. Troubled economies across the globe such as Spain, Portugal and Italy take aggressive measures to make money through bonds. Sadly, the slow pace at which they are recovering from their debt shows that they still have a long way to go.
Headlines may fuel adrenaline but one thing you should never forget about headlines is that by the time you will join the bandwagon, others must have reaped all the profit with nothing left for you. In a lot of instances, the way market reacts is often a complete opposite to what common sense suggests. Therefore, it is strongly suggested not to chase the headlines.
Consider Having a Safe Haven Component for Your Portfolio
The way securities are handled in the global macro market today is termed a ‘risk on/risk off’ strategy. What is commonly happening is that the more risky assets such as commodities and stocks will rally one day and all of a sudden, the sentiment will change. Being an investor, it is only usual to hesitate to move ahead with any opportunities given the number of daily fluctuations. It is, therefore, advocated that you keep several safe haven assets with you. The number of such assets you should carve out depends on your extent of risk tolerance.
At the same time, it is of grave importance that you understand ETFs or mutual funds you are purchasing to secure the desired exposure. The shorter the time is to horizon your liquidity event, the safer the asset allocation will be for you. In addition, you can always seek debt settlement programs in case the need arises.
Don’t Panic as It Will Get You Nowhere
Mutual fund investors are known to underperform as the market instability results in panic that takes its toll on them. Such investors are more likely to buy for a higher price and sell for lower on an impulse. This attitude is so detrimental that entire markets collapse and this is something that is not going to serve you well over time.
Here it is advocated that an investor maintains a portfolio that ranges from more risky assets to less risky assets while taking one’s own level of tolerance into consideration. Riskier assets are susceptible to global environment risks. Include more traditionally stable debt settlement programs and equities in your plan as they can help play a significant role in earning the market its desired stability.
All in all, it is quite an uncomfortable time for the economic market but at the same time, there is no way the inherent global investment risks can be avoided. However, by making use of the tips suggested above, one can make sure that any damage that may be inflicted is limited to the minimum.