It feels like we might actually be nearing the end of the seemingly endless bull run that we’ve been on. Up until recently, the United States has been riding a 13-year stock market bull run that started in 2009. But, the S&P 500 is currently having one of its worst starts to a year ever. In addition to that, inflation is at a 40-year high. There is also a land war in Europe that has no end in sight. And, despite its abysmal start to the year, the S&P 500 still has not returned to its 2020 levels. This could mean that there is a lot more pain ahead of us. In other words, it’s an excellent time to brush the dust off a few safe investment options.
These safe investment options are good strategies to implement over the coming months.
Strategy No. 1: Automated Index Investing
During times like this, it’s important to remember that real money is made during recessions. This might sound counterintuitive. But, if you look at a graph of the S&P 500, the best times to buy stocks are actually in the years following major recessions. If you loaded up on stock in 2009 then you have probably been in the green for the past decade.
During recessions, stocks are essentially put on sale. Granted, it takes courage to go against the grain and buy when the market is red. But, doing so will likely pay off within a few years as long as you do it safely.
When it comes to safe investment options, Automated Index Investing is one of the best. This strategy looks like this:
- Invest in index funds: Buying index funds helps to diversify your money and is safer than buying individual stocks. During a bear market, even the largest companies are susceptible to going out of business. You want to protect yourself by investing in broad indexes instead of singular companies.
- Automate your contributions: Set up your account so that a purchase order is executed every week, biweekly, or monthly (depending on your preference). Making your contributions automatic will help take your emotions out of your investing process. It also ensures that you are buying at every stage of the market cycle. In other words, you can avoid buying high and selling low.
- Hold cash: During a bear market, it is also a great idea to keep extra cash aside. This way, you have money to buy more stock when you feel that the market has over-corrected. The key isn’t to hold cash long-term. The key is to wait until you sense that there is an opportunity and then make a move.
Speaking of holding more cash…
Strategy: No. 2: Adjust Your Risk Profile
During a bear market, one of the best safe investment options is to continue your current strategy but update your risk profile. By this, I mean that you should pivot to more risk-averse investments. Here are a few examples of what this could look like:
- More blue-chip stocks and fewer startups or IPOs.
- Fewer stocks altogether and more safe assets such as bonds and real estate.
- Hold a higher percentage of your portfolio in cash.
- Exiting margin positions.
- Hedging your portfolio to protect against downturns.
This is a good time to remind you that I’m not a financial advisor. These are just general tips. The best asset allocation for you will depend on your risk tolerance. If you feel the need, please speak with a financial advisor before making any investment decisions.
However, in general, the biggest rule of thumb is to hold cash during a bear market. Yes, it’s true that inflation is eating away at your cash. But, you’ll lose much less money through inflation than you can lose during a down market. You want to have cash on hand so that you can purchase stock once you feel that the market has overcorrected.
Holding cash also serves a double purpose of giving you a sense of financial stability. Finally, one of the last best safe investment options is actually to take a break from investing in traditional assets altogether.
Strategy: No. 3 Invest In Something Other Than Assets
The Merriam-Webster definition for “invest” is “to commit money in order to earn a financial return.” We almost always associate this with buying stock, real estate, or bonds in order to make money. But there are plenty of ways that you can invest money and earn a financial return other than these three entities. This is especially true when we are in the midst of a bear market or recession.
For instance, keep reading to learn a few other ways you can invest your money.
Pay Down Debt
Do you have any outstanding debt? This includes student loans, a mortgage, or (especially) credit card debt. As long as you owe money, your debt is generating interest that you will have to pay back eventually. By paying down your debt you are essentially earning a return that’s equivalent to the interest you’re paying. For example, let’s say you owe $10,000 in student loan debt that carries a 7% interest rate. If you focus on repaying this debt as soon as possible, you are essentially saving yourself from paying 7%. In other words, you are earning 7% on your money.
During recessions, investors consider companies with low debt safer than those that carry lots of debt. The same is true when it comes to your personal finances. Reducing your personal debt can protect you in the event that you lose your main source of income during a recession. It’s a great alternative way to use your money instead of throwing it into a declining stock market.
Keep reading to learn more on safe investment options.
Invest in an Education/Skill:
There are thousands of ways that you can invest in yourself and earn a financial return. For example, instead of buying stocks, you could invest that money into earning a degree, certification, or taking an online class. Ideally, you’ll complete this class with a new skill that increases your income potential.
After taking the class you’ll be able to negotiate a raise, start freelancing with your new skill, or increase your rates (for current freelancers). Thus, you are earning a financial return on your investment in education.
For this strategy, I would opt for a cheaper online course as opposed to a traditional degree. There’s nothing wrong with having a traditional degree. They are just much more expensive and limit your ability to work for several months/years.
Invest in a Business
When you buy shares of stock in a company you are investing in a business. It’s just a business that someone else has started and taken public. The problem with this strategy is that you don’t have any control over the direction of the company (unless you buy millions of shares of stock). You just have to trust the management to make the right decisions. Instead of investing in other people’s businesses, consider taking your money and starting a business of your own.
In the beginning, this might feel like a massive risk. But ironically, I consider it one of the best safe investment options. My reasoning comes down to control. When you start a business, you have total control over it. You control the product/service, pricing, customer acquisition, customer service, user experience, etc. If the business doesn’t work at first then you can always pivot it to another venture. Yes, there’s definitely still risk. But your success is reliant entirely on your own decisions. You are in the driver’s seat. Additionally, starting a successful is the most lucrative way to invest money, bar none.
This doesn’t mean that you need to start the next Google. These days, the lines between a simple side hustle and a legitimate business are becoming blurred. In fact, it’s very common for people to make way more money from their side hustle than from their full-time job.
I hope that you’ve found this article valuable when it comes to learning the three best strategies for safe investment options. Please remember that I’m not a financial advisor and am just offering my own research and commentary. As usual, please base all investment decisions on your own due diligence.