There are naysayers abound that say that the stock market meltdowns, particularly in the United States, are about to fall at any day now. Some offer convincing arguments to support what they are saying and, indeed, the global market has shown signs of coming so close to another market bubble burst.
Nobody really knows exactly when a market bubble is going to burst and cause a meltdown in investments across the board, to be honest. However, it is still a reality that we as investors cannot ignore.The best way to deal with possible market meltdowns is to hedge against possible losses. There are many ways to do that, but we’ll touch only on the three methods most investors consider as effective protection.
Move Some Holdings into Commodities
Commodities are tangible investment vehicles like oil, gold, and other precious materials. They are affected by inflation and market decreases, of course, but they become stronger instead of weaker in these circumstances.
In the event of a bearish market, commodities actually rise in price and demand. That’s because financial crises cause investors to snap up commodities quickly as a means of protecting against falling prices in stocks and other financial assets.
On the other hand, inflation has minimal effect on commodities. Their value actually remains the same; in increasing inflation, it is only spending power that decreases and not the prices of what you can buy.
Identify Risky Holdings and Let Them Go
You should always consider the basics in investing – if a certain asset is poised to fall, or is at risk of realizing falling prices, then you should let them go as early as you can.
Of course, it doesn’t mean that you put out sell orders for each and every asset that you hold. What you should do then is to study the performance of each asset in your portfolio, the sector in which their issuers belong to, and have a feel for the kind of risk that they expose you to.
On the other hand, you look at your portfolio again for the assets that are poised to bounce back and give you good returns once the market recovers. It exposes you to some risks of losses, which you can recoup easily at the rebound.
It’s like playing a game of cards – you let go of the cards that take you farther from the win, and keep close to you the cards that can give you the best payout at the end of the deal.
Invest in Real Estate
People might be skittish about investing in real estate following the 2008 subprime mortgage crisis, but, while the mortgages involved this market, real estate properties actually had nothing to do with the financial meltdown.
Provided that you have the capability to invest in cash as well as the means to realize profits from properties through leases or rent, investing in real estate gives you access to assets that never depreciate regardless of inflation or market crashes.
Do you have any other ways to protect yourself and your investment portfolio against market crashes?
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