The current cost of living crisis is making significant societal changes in the UK, including forcing the retired back into work, and young people into gangs, crime and drug dealing to raise money for their families, according to Mike Charalambous, director of Invezz, the investor training and education platform.
Charalambous explains a number of ways to develop one’s investment portfolio to bring in extra cash when costs are putting pressure on household budgets.
He said: “Stocks worldwide are underperforming. The tech industry is progressively deflating, and the S&P 500 index has entered a bear market. While the sell-off has been unpleasant, the fact is that it has resulted in many good firms becoming more affordable.”
Charalambous explained that amid a recession, even the world’s largest corporations can stumble. On the other hand, Charalambous proposed, some businesses operate well during economic downturns and are more recession-proof.
One thing is clear about this prospective economic downturn: much of the bearish sentiment has now been priced into valuations. There are some low-cost stocks available which he believes have been discounted.
Historically speaking, investing in funds that track the stock market, such as the S&P 500 or FTSE, has been a good bet after a drawdown of this magnitude. But as a note of caution, Charalambous warned that: “prices can still dip more, but if an investor’s time horizon is long enough, this volatility can be weathered. The way you invest during a recession is actually as important – if not more – than what you decide to invest in.”
Charalambous outlined how to invest in a recession-proof way in the cost-of-living crisis. He warned that you should only invest with money you can afford: “It goes without saying that you should never spend money that you cannot afford to lose, and investing is no exception. You must determine how much you can afford to give up and ensure that you do not go over your budget.”
One of the key stock-picking skills was to look for companies that are protected from market volatility. Charalambous said: “Some firms are less affected by economic cycles while the rest of the economy suffers. Therefore, adding those to your portfolio before, or when a recession occurs, is usually a good move. Areas in which these firms operate include consumer staples, grocery stores, alcoholic beverages manufacturers, cosmetics, healthcare…”
One of the most important things to do across a portfolio is to use diversification to reduce risks. “The greatest method to secure your own assets is to diversify your investments across sectors and practice prudent portfolio allocation. Not placing all of your eggs in one basket means that the impact of a crash in one industry or firm is reduced by other investments,” Charalambous said.
“This is especially true for extremely volatile asset classes, for example cryptocurrency, which can be prone to extreme drawdowns in short time periods. Spread your exposure throughout worldwide markets as well, so you are not overly vulnerable to downturns in any one region,” he emphasised.
Here’s one we made earlier
An expedient way to get ahead of the game is invested in a ready-made portfolio. “Many investment management firms offer ready-made portfolios which aim to have a sensible spread of investments, including non-stock market assets such as bonds and property.”
“Many are labelled according to your risk tolerance – ensure you are comfortable with your chosen risk category as there are no standard definitions of what a ‘balanced’ or ‘cautious’ portfolio means. You could opt also for a one-stop-shop multi-asset fund with a dedicated fund manager which provides built-in diversification,” argued Charalambous.
Although the next meme stock seems such an attractive option – especially with all those funny pictures on social media – Charalambous warned against jumping onto fads.
“The typical adage ‘what goes up must come down’ isn’t always true in investing, but you should always proceed with care when it comes to fad investments. As usual, do your homework, and if you believe it is a worthwhile investment, go ahead and do it,” said Charalambous
Invezz has lots of other tips and tricks on investment on their platform, and had written a lot about inflation.