What should investors do when the market is on fire and interest rates are high?

World stock markets are falling. Interest rates and the number of new Covid-19 infections both increased. Inflation remains high. Geopolitical turmoil is not over. All of this raises fears of a recession.

According to CNN, no individual or organization is immune to instability. But there are a few ways to hedge against losses and make the most of what you have.

Global stock markets all dropped due to the risk of tightening monetary and fiscal policies, and slowing economic growth. Photo: Reuters.

Take advantage of the boom in the housing market

For those who have considered selling their home, this could be the time to make the leap. The housing market is booming. House prices in the US in April increased by nearly 15% year-on-year. The rental price is nearly 17% higher.

Meanwhile, mortgage rates rose more than 2 percentage points from a year ago, making it more expensive to buy a home and dampening demand.

“For those who are thinking of putting their home up for sale, do it now,” recommends financial planner Mari Adam (based in Florida).

Holding highly liquid assets

According to Rob Williams, managing director of financial planning, retirement income and wealth management at Charles Schwab, it is advisable to hold highly liquid assets to pay for emergencies or when the market severe recession.

This is important for large, out-of-control events, such as layoffs, which are often high risk during a recession.

As such, enough cash, money market funds, or short-term fixed-income instruments are needed to cover a few months’ worth of living expenses, emergencies, or whatever major expenses need to be paid.

Don’t make investment decisions based on breaking news

The fast news about energy prices, rising food prices, the risk of a world war or nuclear attack are all worrying things. But making investment decisions based on fear or panic is not a good choice.

“Making a big change in this uncertain landscape will often make you regret it,” said Don Bennyhoff, chief investment officer at Liberty Wealth Advisors.

Now is a good time for investors to rebalance their portfolios. Photo: Reuters.

Looking back at the crises of the last century, stocks often bounce back much faster than imagined. For example, since the financial crisis hit in 2008, the S&P 500 has recovered 11% per year through 2021.

The worst time was in 2008, the stock plunged 38%. But for most of the following year, the index rallied. “Continuing might be tough on your nerves, but it’s good for your portfolio,” Mr. Williams commented.

Reassess risk tolerance

It is easy for an investor to believe that he or she has a high tolerance for risk when stock prices skyrocket. But investors need to be able to withstand long-term fluctuations.

Therefore, investments need to be reassessed to ensure that they remain relevant to an investor’s risk tolerance in the future.

“There are many definitions of risk and loss,” commented Mr. Bennyhoff.

“For long-term goals, it’s important to calculate how comfortable you are with the level of risk, to get larger returns, to prevent inflation from eating away at savings and profits.” , he added.

Rebalance your portfolio

With returns on stocks hitting record highs over the past few years, now is a good time to rebalance your portfolio.

“You may be holding too many growth stocks. To help stabilize future returns, you can reallocate some of your money into slower-growing value stocks through a mutual fund.” , Mrs. Adam recommends.

“If you have built a diversified portfolio that is suitable in terms of time and risk tolerance, the recent drop will be just a blink in the long-term investment plan.” Mr. Rob Williams at Charles Schwab.

Investors should also include bonds in their portfolios. “If the Federal Reserve’s interest rate hikes in response to inflation lead to a recession, bonds are likely to deliver good returns,” Bennyhoff said.

“During recessions, high-quality bonds often outperform stocks,” he added.

Be careful with new investments

If you’ve just received a large sum of money, Ms. Adam said investors should invest in installments periodically over a period of time, rather than investing all at once.

“Invest wisely over time, because the news this week will be different from the next,” she said.

“Don’t let emotions about the economy or the market sabotage long-term growth. Invest and stay disciplined,” said Ms. Adam.

History shows that people, even experts, often make false predictions about the market. The best way to achieve your long-term goals is to keep investing and stick with your portfolio allocation. This will help mitigate damage in a volatile 2022.

“If you have built a diversified portfolio that is suitable in terms of time and risk tolerance, the recent drop will be just a blink in the long-term investment plan.” Mr. Williams commented.

According to zingnews.vn