The world has been looking at post-COVID recovery with lots of promise, as the last few months registering some good progress in terms of economic recovery. Areas such as jobs and services are yet to return fully to where they were before COVID, but we can say there’s a fairly good improvement from last year. However, the world can’t relax as inflation seems to be looming following the looming stimulus package spending and past trillions of dollars pumped into the economy. As such, investors are looking to adjust their portfolios to hedge against a market crash, which is looking highly likely.
The best hedge against a market crash
To effectively hedge against a market crash, risk management is the first step that any investor should consider. To manage risk, it’s important that we look at diversification, a strategy that many inexperienced investors (sometimes even the experienced) often ignore. In an uncertain market, a diversified portfolio will always protect you from any potential losses during inflation.
Well, one could argue that diversification has its downsides too, such as the potential to earn less when the markets regain. However, experts often advise that you should include a mix of portfolios, such as non-US dollar stocks, corporate bonds, foreign bonds, and value stocks.
Hedging against a market crash
While stocks are a popular investment destination for most mainstream investors, it remains one of the poorest when it comes to returns, compared to other investment channels such as bonds and cryptocurrency. This is particularly true with large-cap stocks.
Hedging against a market crash requires that you diversify your portfolio, and position it for growth as well. The first strategy is to invest in emerging markets. These markets have the potential to resist inflation affecting the mature markets. Stocks of companies from these regions/countries tend to grow faster than the impact of inflation, as has been shown in the past. Considering these markets is likely to protect you from the possible impact of a downturn. You can also increase your investment in bonds, which will surely give you low yields. However, bonds still provide more benefits and safety against inflation than stocks.
Invest in the new money (Cryptocurrency)
One of the finest qualities of crypto is its resistance to inflation. Crypto investment has given hope that against any looming economic downturn. Investing in cryptocurrencies, such as Bitcoin, the most popular crypto, can work as a hedge against inflation. To invest in cryptocurrencies, check out firms such as Helios Fund that offers some of the best returns in the market. Another good thing about Helios Fund is that you’re not affected by the crypto volatility. Even if Bitcoin collapses by 50% in one week, Helios Fund will still pay you 9X your investment in just 3 years. How do they achieve this? They actively manage the portfolios and optimize BTC based on the best market conditions.
Hedging against inflation should be a proactive initiative to ensure you protect yourself from any potential economic downturn. Taking into account that large-cap stocks, which appear quite popular with traditional investors, don’t give the best of returns besides exposing you to more risks. Crypto is an emerging component that you may consider adding to your portfolio.