The recent conflict between Russia and Ukraine has many people asking, "how will it affect my investments?"
Are you asking the same thing?
Are you worried that your investment portfolio won’t survive these uncertain times?
When you're a trader, peace of mind is everything. It's what allows you to focus on your strategies and make smart decisions.
But no matter how well you plan, there's always the potential for uncertainty. That's why it's important to have a portfolio that can weather any storm.
In this post, we'll show you how to build one that will give you the confidence to keep trading in any market conditions. This will also ensure you won't have to go through the same sleep-depriving experience ever again.
Is there a reason to worry?
It's a fact that geopolitical issues impact stocks, cryptocurrency, commodities and even the Forex market. The severity may differ from one asset class to another, but there will be an effect.
Take stocks, for example.
Situations of heightened uncertainty can inhibit a company's ability to predict sales and production trends like they normally would. This causes institutional investors to reduce holdings in "unsafe" stocks and move their funds to safer asset classes like government bonds and precious metals.
Some investors, however, consider geopolitical events as opportunities that can work to their advantage.
This should be THE goal. How do you achieve this?
1. Diversify effectively
Geopolitical events, recessions and economic downturns happen. The best thing you can do is to prepare your investment portfolio for such occurrences.
You’ve heard it before, “Don’t put all your eggs in one basket.” Doing so is like willingly pressing a self-destruct button.
Is your portfolio diversified enough if you invest in three or five assets? Yes and no.
Yes, if you’ve included a broad mix of investments. No, if those investments are within the same asset class.
When investing in stocks, for example, you diversify by buying different stocks from different sectors.
A truly diversified portfolio should have the following attributes:
- Includes cash, exchange-traded funds, mutual funds, domestic and foreign stocks, sector funds, asset allocation funds, commodity-focused funds, real estate funds
- Includes money market funds, short-term certificates of deposits, and other assets for short-term investments
- Have a good mix of asset classes with low or negative correlations. If one asset goes down, the others counteract.
- Investments have varying rates of return and risks
During these particularly uncertain times, your portfolio would sail through if you invested in:
- Stocks of companies with healthy cash flows, global revenue streams, and strong balance sheets
- Commodity funds such as agricultural goods, energy sources, and precious metals
One important thing to note with diversification – allocation should be based on calculated probabilities and risks. Also, rebalance your portfolio regularly.
2. Hedge with assets that strengthen during uncertain times
Gold is known as a safe-haven asset because its price tends to rally in times of conflict, in low-interest environments, and when everything else takes a dive.
The recent Russia-Ukraine conflict is no exception. With tough sanctions imposed on Russia and financial assets frozen, investors are shifting to gold.
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Other commodities that are gaining strength are energy and agricultural stocks. Russia and Ukraine are major players in the global commodities trade. With them temporarily out of the picture, supply is reduced. This led to the commodities sector reaching record highs.
Some companies, such as those with defence contracts, also see a boost in their bottom line as military spending increases.
When you know what assets rally during these times, you are sure to attain a good risk-reward ratio if you add them to your portfolio.
You should also trade CFD so you can make money whether prices drop (go short) or pick up (go long). CFD also allows you to leverage your positions. Leverage of 1:500 increases your profitability significantly. Just keep in mind that your risk exposure also increases.
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3. Be on the defensive
Economic growth is still accelerating despite the geopolitical tension between Russia and Ukraine. With COVID-related restrictions being lifted, cyclical markets and sectors are on the rise. So, buy assets that show global growth.
You should also add assets to your portfolio that pay dividends, especially those that offer stable and consistent dividends. This allows you to continue earning even when the overall economy or stock market is rocky. Your portfolio will become even more profitable once everything reverts to more favourable conditions.
Bonus: Manage your emotions strategically
Fear is likely the first emotion that surfaced when you heard about the conflict between Russia and Ukraine. Regardless of where you are in the world, there's sure to be a chain reaction. That certainly proved true as geopolitical tensions intensified.
Investing or trading during these times can be deeply emotional. This can result in irrational decisions driven by fear. If you have yet to build a strong trading mindset, there are ways to overcome such feelings.
- Seek help, consult or speak with a financial advisor to help you manage your portfolio and build a strong financial plan for the long term.
- Copy trade and let professional traders make decisions on your behalf.
On that note, trade with Fullerton Markets so you will have access to trading professionals, a robust copy trading platform, and different asset classes to invest in, including stock and cryptocurrency CFD.
No one can predict the future, but with a well-diversified investment portfolio and by following the tips listed above, you'll definitely be able to weather any storm.
Ready to grow your wealth in the world's largest financial market and enjoy unlimited bonuses at the same time? No better place to start than right here with us! Start trading with Fullerton Markets today by opening an account:
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