2022 will go down in history as one of the worst years because of a war, energy crisis, tumbling stock markets, high inflation, etc. Investors who were used to easy gains on the stock market must adapt to new market conditions. So what are they eyeing right now?
US Treasury bonds
First of all, investors look for safe places to keep their money’s value amid high inflation levels worldwide. Second, almost all assets declined in value this year, so it is significantly harder to profit during a recession. As the interest rates started to take off, some investors began pouring money into short-term US Treasuries because this type of asset rises in a time like this.
While the yield one year ago was 0.6% on a 6-month Treasury, now it has grown to more than a 4% yield. While 8% in a year does not sound so attractive, it is considered a very low-risk investment that can continue to rise even more if interest rates are lifted again. However, it is important to notice that short-term treasuries are doing better than long-term ones.
BREAKING: THE STOCK MARKET IS DOWN OVER 30% THIS YEAR.
Wait a minute.
ACTUALLY IT'S LONG DURATION TREASURIES, THE RISK-OFF ASSET.
Never, IN HISTORY, in an EXTREME drawdown for stocks, have Treasuries, THE risk-off asset, GONE DOWN MORE THAN STOCKS.
WAKE. UP. pic.twitter.com/zLUsPem58t
— Michael A. Gayed, CFA (@leadlagreport) October 15, 2022
Investors can buy Series I Savings Bonds until the end of October with a 9.62% return. These bonds aim to protect investors against inflation thanks to a fixed rate and a rate that adapts to inflation. It’s paid out two times a year. However, there are some rules that you need to fulfill, so make sure to be careful before making a purchase.
While safety is crucial in a recession, liquidity is also important. Investors need to have some liquid assets or cash if these is an unexpected job layoff or it is time to invest in a stock market when it seems undervalued.
Gold and other metals
It is pretty easy to identify which phase we are currently in. Don't forget that something is starting to be built, and that brings a lot of opportunities 😉💪
— Investro.com (@investrocom) October 16, 2022
Gold is viewed as safe-haven during recessions, but it doesn’t necessarily bring large profits anymore. The main goal of gold is to store value. Looking at the last two crises in 2000 and 2008, the price of gold always increased. However, gold did not make a new all-time high (ATH) in more than 11 years, while US stock indices always do after a crisis.
The yellow metal is down 8% so far this year, but as the crisis continues to trouble the economy and stock market, the probability of gold rising in the next year is very high. Stocks may bounce back up from the last move downward, but as interest rates and inflation are still high, it is unlikely. This is where gold and other metals could outperform stocks in the next few months.
Dollar-cost average (DCA)
Many investors miss the gains of 2020 or 2021, craving the investments with the highest potential profit. In the meantime, this may be the best time to play it safe and dollar-cost average. This is something that people do throughout their whole life as well, investing in the S&P 500 every month for decades.
However, a bunch of investors are holding cash while stressing about the best possible entry. Meanwhile, they could divide their money into several portions and invest it over the next year or two. For example, Investor XYZ has $50,000 and ponders what and when to buy. If they want to lower the risk while investing in risk-on assets, they can buy these assets for the next ten months for $5,000 monthly.
This decision could lower the risk of losing in additional market selloffs because the entry would be averaged. Investors should stop trying to time the market at the moment and focus on the time in the market.
Direct investment in the stock market or cryptocurrencies could result in a drawdown in the next few months as the economic decline is ongoing. However, considering one of these three choices could lower the risk of losing and actually profit while others wait for the market to turn around.