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Created on 17.11.2023

Should I invest anti-cyclically?

Stock market corrections have always been part of the world of finance and repeatedly occur at irregular intervals. This leaves many investors wondering what that means for their investment strategy and the assets they hold. Rather than being unsettled by fluctuations, they can also be used as an opportunity: by investing anti-cyclically.

Investing anti-cyclically means not following the general trend when making investment decisions. This means, for instance, buying shares in the event of a poor situation on the stock market, while most investors are unsettled and selling off securities on a large scale under unfavourable conditions. Successful anticyclical investors – known as contrarians – can in this way benefit from rising prices. The same also applies when stock markets are performing well. Lots of investors want to jump on the bandwagon by purchasing securities. But this is precisely when anticyclical investors sell off their shares. They anticipate a downturn and aim to sell at the optimal time to make the greatest possible profit.

Investing against the tide – pros and cons

Potentially higher returns

A major advantage of anticyclical investing is the potential for higher returns. By going against the general market trend and purchasing assets that are unpopular at the time, you can often buy them at lower prices in the hope that they will increase in value in the future. Buying in difficult economic times offers the opportunity to benefit from lower prices and achieve higher returns in the long term.

Timing as a risk factor: caution and knowledge required

Investing successfully in difficult economic times is a skill that has to be learned. The main risk and the biggest drawback of anticyclical investing is choosing the right time. Entering a downward trend too early or exiting an upward trend too late can result in substantial losses. Investing anti-cyclically therefore requires a sound knowledge of economic factors and trends. For this reason, beginners and inexperienced investors should approach this strategy with caution and, if necessary, seek professional advice.

Is anticyclical investment the right option for me?

Although poor economic conditions and stock market corrections often unsettle investors, they can also present opportunities to invest money, particularly if you start investing at a low point and prices then climb again. It’s obviously very difficult to catch the “right time”. Nobody knows exactly when the low point will be reached and when prices will rise again, and it is simply impossible to accurately predict future developments on the financial markets. Some investors are willing to buy securities during periods of stock market correction, consciously running the risk that their value could continue to fall or be completely lost. Others fear further downswings and prefer to offload securities.

Discipline over impulse

An anticyclical strategy requires a disciplined approach. It is advisable to have a clear and well thought-out plan so as to minimize impulsive or emotional actions that can often lead to poor investment decisions. Be aware of this and consider whether anticyclical investment is consistent with your investment strategy. Your advisor will be happy to help you with this.

The art of calmness and diversification

As an anticyclical investor, it is particularly important to remain calm and level-headed. You must not start to panic if prices continue to drop instead of climbing as anticipated – even if the rest of the world seems to be pursuing a different strategy from yours. Emotional and knee-jerk reactions must be avoided and the defined strategy always kept in mind.

As is so often the case, the key factors in this are a diversified portfolio – which enables you to offset losses in particular sectors, currencies or regions to some extent. Investing according to your investment strategy and with a long-term investment horizon also allows you to manage the risk you take.

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