What to do when there is a financial crisis, and all your savings decrease in a second? There are some steps that investor can take to prevent themselves and turn the crisis into opportunity. JPMorgan conducted a study based on decades of market history and developed a guide on how investors can protect themselves and overcome the next recession. With the beginning of the next economic crisis becoming increasingly imminent, JPMorgan mentions that investors start planning changes and think about the investment portfolio.
Nevertheless, the company believes the recession should not start in the next 12 months and advises that making significant defensive changes more than a year before a recession can cost a lot of money. There are certain asset classes that investors could consider when the crisis comes: stocks, bonds.
When it comes to stocks, a vital issue of concern is its high valuations. The economic crisis is the best time for investors to increase the number of shares in a company. Many investors such as Warren Buffett have massive cash flows waiting for the right time to spend in this discounted period. Also, some investors tend to be fearful during a crisis, selling their shares to find a better solution maybe. Therefore, investors should recognize that if they invest in a good business, this period will pass, and their stocks will increase in value. If you had invested $1,000 in Apple in early August 2008, it would have been worth more than $9,222.50 as of August 2, 2018, according to CNBC calculations.
A decade ago, no one talked about tail risk hedge funds, which were a minuscule niche of the market. However, today many large investors, including pension funds and other institutions, have mandates that require the inclusion of tail risk protection. In a recent interview with ValueWalk, Kris Sidial of tail risk fund Ambrus Group, a Read More
Investors in corporate debt must also take essential steps, says JP Morgan. Warning that corporate debt is at top levels in the US and some developing markets, while the value of so-called high-grade (or investment-grade) corporate debt is at record lows in the US and Europe. He advises investors to exercise caution in high-yield, high-yield corporate bonds by shifting their debt to government bonds. The bank also suggests a reduction in debt in Europe and overweight cash.
Scenario of Crisis
David Tice, the longtime manager of the Prudent Bear Fund before selling it to Federated Investors in 2008, is among a growing number of investment professionals who are becoming increasingly nervous about the market and the economy. “We are approaching a collapse,” he told CNBC, adding, “I am concerned that the economy will go into recession faster than many people think.” He is particularly concerned that stock markets and currencies in emerging markets have fallen, which may be a prelude to a slowdown in the US. Contrary to most predictions, it predicts a global trend of deflation rather than inflation.