Investing Cautiously and Wisely in the Reopening and Still Unpredictable Economy
Most retirees live off of their investments, not side hustles or part-time jobs if they’re lucky. Unfortunately, with the economy shut down for the better part of a year, making moves in the market has been increasingly risky and unpredictable.
Thankfully, the economy is reopening; with another influx of government funding to small businesses and the increasing end to quarantines and mandatory closures, the world is slowly beginning to come back to life. This reinvigoration of the global and national economic machine means it is time, once again, to consider your financial future and how best to protect and invest your nest egg.
Small Businesses and Their Affiliates Are Risky
When looking for investment opportunities in the current market, you most likely want to embrace a defensive strategy, limiting as much risk as possible. While small businesses do have the potential to drive the economy, the last year has seen too many small enterprises hit hard, with several unable to survive the pandemic closures.
There is some hope for small companies because the government just signed another package into law, providing $484 billion to businesses in need. Unfortunately, many economists and entrepreneurs believe the influx of cash is too little, too late, especially when several small firms explain that permanent closure is weeks or days away.
While the plight of the small business owner is tragic, investors must take the information to make strategic decisions. With the uncertainty currently surrounding small companies, it is wise to hold off investing in firms doing the majority of their business with such enterprises. By limiting your exposure to the struggles of small businesses, you can protect your investment, insulating yourself from any future hints or dips in the market.
Cyclical Companies Stand To Experience Dramatic Gains in the Early Stages of Reopening
Cyclical stocks represent those stocks most affected by the economy's ebb and flow, such as entertainment, retail, hotels, and industrial stocks. While many of these industries are still experiencing significant financial hits from the pandemic, others are due to experiences a boom.
Most investment professionals expect manufacturing and construction to be the firsts industries to experience growth with the economic recovery. These experts have examined the economic growth in China as evidence of future American projections.
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Quality Companies Offering Reasonable Valuations Provide a Decent Defensive Strategy
Large investment firms are also telling investors to find quality companies to invest in, those with reasonable valuations. These businesses offer a negligible default risk and also provide insulation or protection against liquidity.
However, as with most things regarding investments, you need to be careful. You want to avoid firms seen as value traps, those companies that already experienced a surge in their valuation or might be cheap for a reason.
The companies you want to invest in are those with a solid financial reputation, a healthy balance sheet, and who are less likely to experience difficulty from a delayed and slow reopening process. By focusing on such companies, you effectively insulate your portfolio.
While the pandemic halted most economic activity and made investments increasingly risky, the current reopening signals a return to fiscal health. While the current market is still a feral space, leaving investors uneasy about market behavior from day to day, refocusing your investment strategy for potential gains is possible. By limiting exposure to stocks more vulnerable to market fluctuations and default, and embracing cyclical and quality companies, you can effectively insulate your portfolio from current market volatility and bolster its performance. Leave a comment if you have any questions or anything else to add.