It feels like we are nearing the end of the seemingly endless bull run in which we have participated. Until recently, the US was on a 13-year stock market bull run that began in 2009. But the S&P 500 is currently off to one of its worst starts in a year. On top of that, inflation is at its highest level in 40 years. There is also a ground war in Europe that has no end in sight. And, despite its disastrous start to the year, the S&P 500 still hasn’t returned to its 2020 levels. That could mean there’s a lot more pain ahead of us. In other words, now is a great time to dust off some safe investment options.
These safe investment options are good strategies to implement over the next few months.
Strategy #1: Automated Index Investing
At times like this, it’s important to remember that real money is made during recessions. This may seem counter-intuitive. But, if you look at a chart of the S&P 500, the best times to buy stocks are actually the years following major recessions. If you tanked in 2009, you’ve probably been in the green for the past decade.
During recessions, stocks are basically put on sale. Admittedly, it takes courage to go against the grain and buy when the market is red. But it will probably pay off in a few years, provided you do it safely.
When it comes to safe investment options, automated index investing is one of the best. This policy looks like this:
- Invest in index funds: Buying index funds helps diversify your money and is safer than buying individual stocks. During a bear market, even the biggest companies are likely to fail. You want to protect yourself by investing in broad indices rather than individual companies.
- Automate your contributions: Configure your account so that a buy order is executed weekly, bi-weekly, 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 money: During a bear market, it’s also a good idea to hold extra cash aside. This way you have money to buy more stocks when you feel the market has overcorrected. The key is not to hold cash for the long term. The key is to wait until you feel there is an opportunity and then act.
Speaking of holding more cash…
Strategy: #2: Adjust your risk profile
During a bear market, one of the best safe investment options is to continue with your current strategy but update your risk profile. By that, I mean you should look to more risk-averse investments. Here are some examples of what that might look like:
- More blue chip stocks and fewer startups or IPOs.
- Less stocks and more safe assets like bonds and real estate.
- Hold a higher percentage of your portfolio in cash.
- Exit from margin positions.
- Hedge your portfolio to protect against downturns.
This is a good time to remind you that I am not a financial adviser. These are general tips only. The best asset allocation for you will depend on your risk tolerance. If you feel the need, please consult a financial adviser before making any investment decision.
However, in general, the rule of thumb is to hold cash during a bear market. Yes, it’s true that inflation eats away at your money. But, you will lose far less money to inflation than you could lose during a bear market. You want to have cash so you can buy stocks once you feel the market has overcorrected.
Holding cash also serves a dual purpose of giving you a sense of financial stability. Finally, one of the last and safest investment options is to actually stop investing in traditional assets altogether.
Strategy: #3 Invest in something other than assets
Merriam-Webster’s definition of “investing” is “commit money in order to obtain a financial return.“We almost always associate this with buying stocks, real estate or bonds to make money. But there are many ways to invest money and get a financial return other than these three entities. This is especially true when we are in the middle of a bear market or recession.
For example, keep reading to find out a few more ways to invest your money.
Pay off the debt
Do you have an unpaid debt? This includes student loans, a mortgage, or (especially) credit card debt. As long as you owe money, your debt earns interest that you will eventually have to pay back. By paying off your debt, you essentially earn a return equivalent to the interest you pay. For example, suppose you owe $10,000 in a student loan bearing an interest rate of 7%. If you focus on paying off that debt as soon as possible, you’re essentially saving yourself from paying 7%. In other words, you earn 7% on your money.
During recessions, investors consider companies with little debt to be safer than those with high debt. The same goes for your personal finances. Reducing your personal debt can protect you if you lose your main source of income during a recession. It’s a great alternative to using your money instead of throwing it away in a declining stock market.
Keep reading to learn more about safe investment options.
Invest in education/skill:
There are thousands of ways to invest in yourself and get financial returns. For example, instead of buying stocks, you can invest that money to get a degree, certification, or take an online course. Ideally, you will complete this course with a new skill that increases your earning potential.
After taking the course, you can negotiate a raise, start freelancing with your new skill, or increase your rates (for current freelancers). Thus, you earn 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 is 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 a company, you are investing in a company. It’s just a business that someone else started and made public. The problem with this strategy is that you have no control over the direction of the company (unless you buy millions of shares). 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 your own business.
At first, this may seem like a huge risk. But ironically, I consider it one of the best safe investment options. My reasoning boils down to control. When you start a business, you have full control of it. You control the product/service, pricing, customer acquisition, customer service, user experience, etc. If the business doesn’t work out at first, you can always rotate it to another business. Yes, there is always a risk. But your success depends entirely on your own decisions. You are in the driver’s seat. Plus, starting a successful business is the most lucrative way to invest money, bar none.
That doesn’t mean you have to start the next Google. These days, the boundaries between a mere sideline and a legitimate business are blurring. In fact, it’s very common for people to make a lot more money from their side business than from their full-time job.
I hope you found this article helpful when it comes to learning the top three strategies for safe investing options. Remember that I am not a financial adviser and simply offer my own research and commentary. As usual, please base all your investment decisions on your own due diligence.
A graduate of the University of Miami, Teddy studied marketing and finance while playing four years on the football team. He has always had a passion for business and has used his experience from a few personal projects to become one of the top rated business writers on Fiverr.com. When he’s not pounding words on paper, you can find him pounding notes on the piano or traveling to a random location.