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Best Investments for a Volatile Economy


Summary

  • Volatile economies can provide unique opportunities
  • Cash is a flexible and valuable asset
  • If you have the resources, buying real estate can help you build a successful portfolio that can increase in value when the market recovers

Introduction

Stock markets can take you on a wild ride, and when things get volatile it’s a good idea to assess your investments. If you’re wondering what to do in a volatile market, there are a couple of investments you can make that will handle their own when the tough gets even tougher.

Stash Your Cash

The first thing people tend to do when the markets take a downturn is panic. Try your best to swim upstream. In other words, tune out the panic and focus on what you can control. Panic selling and becoming frazzled is not the way to go and you can wind up losing money if you do this. 

Instead, accumulate cash and redirect it into a more conservative way of earning money – through interest. Cash is one of the most flexible asset types and by nature, very liquid. By putting your cash into a savings account or a certificate of deposit (CD) your money is FDIC insured. That means even if the bank goes under, your money is safe.

A CD can provide a safe haven for your money if the market plummets. The great news is that you can open a CD for as short as 3 months or keep your money in a CD account for 10 years. Banks may offer higher annual percentage yields (APY) if you keep the money in longer so check with your bank to see what rates they’re offering. The best part about investing in a CD is that when the CD hits it’s maturity date and you see a market opportunity you can buy. When markets aren’t as volatile you will have a pile of cash to buy stocks that have gone down in value but will eventually go up when the market rebounds. 

Pros

Cons

  • Safe from any market downturn
  • Penalized with a fee if you take out money before the CD matures
  • Traded easily on stock exchanges
  • Interest rates aren’t typically super high and if rates go up your rate won’t change
  • You can tap into the funds if there is an absolute emergency
  • Illiquid- locked into set term ie: 24 months before you can withdraw
  • Locked into a set interest rate that won’t go down even if rates go down

High Dividend Stocks

Having a healthy amount of dividend stocks is never a bad idea. This case is especially true in times where monthly income may be uncertain. During recessions, people lose their jobs, and their monthly income vanishes. To mitigate the hurt of losing a job, investors turn to dividend income. Companies reward investors with dividends, as a thank you for buying their stock (in simpler terms). 

Dividend: A sum of money paid regularly (typically quarterly) by a company to its shareholders out of its profits or reserves.

Pros

Cons

  • Monthly or quarterly cash income
  • When markets take a huge turn for the worst companies can eliminate or freeze the dividend until they can recover
  • Dividend reinvestment if you don’t want cash- thus buying more stocks with that cash
  • Sometimes higher price per share due to company performance and their current stock prices 
  • Dividend stocks are typically connected to companies that are reputable and  have been around a long time

REITs

REITs are important during volatile times due to their solid track record. In times where markets are down REITs, stay up and continue to perform very well. Not only do REITs provide dividend income but they also appreciate. The best part about it investing in this form of a real estate investment vehicle is that you don’t need to pay high fees or a huge lump sum of money to reap the benefits of the real estate market. In summary, REITs are a key player in any savvy investor’s profile, volatile economy or not. 

Best Investments for a Volitalie Economy

Quick Quiz

Review and answer these two questions to move on to the next section in the course.

What is a dividend?

Wrong answer, please select correct one.

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If you have money invested into a CD and interest rates go up, what happens to your locked in rate?

Wrong answer, please select correct one.

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Wrong answer, please select correct one.

Wrong answer, please select correct one.