How To Manage Your Wealth In A Sick Market
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There are many things that are sick in this world. The Syrian Civil War is one, and the fact that a man who ignored allegations of sexual assault at Baylor University got to keep his job is another. But what’s sick at the moment is the stock market.
Wall Street is having a torrid time for a whole bunch of reasons. Unlike the guys over at UC Davis throwing money around, investors on Wall Street are unsure where to put their money. And it’s all down to the general economic stagnation messing up the country right now.
So how can you go about managing your wealth in this sick market so you can survive the next year?
Why Has the Market Got a Cold?
The reason the market is sick can be boiled down to a few problems. Many speculators cite the Third Avenue Focused Credit Fund implosion as one, but really this is just a symptom of a bad market. There’s a real risk that things are only going to get worse as time goes on.
The real reasons for this sick market are low interest rates and global quantitative easing. There are many negative results from both of these things, but on Wall Street they are fueling a trend of junk bonds. There are too many investors who are struggling to make an income, and so they are buying lots of mutual funds, ETFs, and those individual high-yield bonds they wouldn’t normally touch.
With the real risk of economic turmoil in Europe due to the British referendum on the European Union, and the idea that an increase in interest rates could be put off yet again, investors are worried.
The Natural Urge to Go Conservative
There’s always going to be some sort of natural urge to go conservative in situations like this. You don’t want to risk putting your income into a company that won’t experience growth. And so you will choose the ETFs and the various treasury bonds available.
The issue with going conservative is that you are guaranteeing that you won’t make any income. In fact, compare the yield with inflation and you have a situation where you are losing money every single year. Part of the problem is that you either stay conservative or you become desperate for income and start investing in junk investments.
So What Direction Should You Take?
Try to raise as much cash as you can. Take your money out of any junk bonds. They are not going to help the market and they are only going to further exacerbate the problem in the coming weeks and months.
Take your aggressive funds and turn them into a profit opportunity. Keep in mind that many financial stocks have weaknesses in their ability to obtain credit. This goes just as much for the average financial firm as it does for equity firms and fund management organizations.
There’s even a strong argument for taking your money completely out of the markets and investing in gold due to how weak currency is and how well gold is doing.
Will Turmoil Abroad Cause Markets to Crash?
The big worry about this sick market is that it could go terminal extremely quickly. This month is a landmark month for the world economy, due to the aforementioned British referendum. In the US, we are on our hands and knees praying that they decide to stay in the European Union.
The financial consequences of a ‘Leave’ vote could be catastrophic all around the world. Many companies could leave Britain, they could experience at least a 6% downturn in GDP, and the change in their currency value could cause an explosion in the world currency markets.
A total financial crash is unlikely because the British wouldn’t actually leave the European Union officially for two years. The initial shockwaves could be painful. If you are planning any short-term investments, you may want to put off making a final decision until after the vote.
US companies and Wall Street are going to be affected just because of how close our ties are with the British. Smart investors should be looking long-term at this stage.
Conclusion – Wealth Management
Dealing with a sick market is about being able to account for the political and economic news worldwide. Look away from the charts and focus on what’s going on in the real world. Only through a firm knowledge of the world beyond Wall Street are you going to be able to make an educated decision.
What tips do you have on managing your wealth in a sick market?