Financial crisis, currency crises, debt bubbles, stock market corrections – it is these events on the financial markets which have been etched on the memories of investors in recent years. It is no surprise that investors have become uncertain as a result, and that they want their investments to pose as little risk as possible. But even careful investors can invest money, and doing so can certainly pay off, especially given that money in savings accounts hardly yields any interest anymore. By adopting an appropriate investment strategy, investors will be able to sleep easy even in turbulent times. The following investments are considered relatively crisis-proof:
More than just saving: investing in times of uncertainty
How will the economic situation change over the coming years? What kind of political and economic developments and events can we expect to see? Investors who believe times to be uncertain or who are expecting stock exchange corrections do not have an easy time making the right investment decisions, with pros facing similar challenges to inexperienced investors. But even in supposedly difficult times, there are still investments where the risk is manageable.
Certainty has its price
The lower the risk an investor takes, the lower the return they can expect on the investment, which means that, at present, government bonds yield very negative returns. Low interest policies are one aspect that contributes to this, which central banks have been pursuing since the 2008 financial crisis. For more information about the 2008 financial crisis and its impact on the financial markets, see the article “2008 financial crisis – a review and the lessons learned”.
Bonds as an alternative
What this all means is that it is impossible to find a really safe investment with good returns and high liquidity. Certainty, returns and liquidity are three goals that are at odds with each other when it comes to investing. The article “The link will open in a new window The “magic triangle” of financial investments” features a video on this conflict.
That said, there are investments that do yield comparatively attractive returns whilst still being fairly safe bets: bonds. This is especially true of bonds in Swiss francs that have good creditworthiness, though they too do still come with certain risks. If interest on the market increases, for instance, then a current bond will fall in value because newly issued bonds offer a higher coupon, making them more appealing. A bond with a face value of CHF 100 and an interest rate of 5% is more valuable in a low-interest environment than a bond with the same face value, but which has an interest rate of 2%. These scenarios can occur as bonds bear interest at a fixed rate over several years, whereas market rates can change constantly. When it comes to foreign bonds, however, we cannot forget about currency risk. Exchange rates depend heavily on monetary decisions made domestically and abroad, as well as on economic trends. It is hard even for experts to predict how these exchange rates will behave. This means careful investors should firmly hedge their currency risks against share price losses, or they should simply avoid securities in foreign currencies full stop. A lot of convertible bonds are also examples of securities that are considered to be conservative, yet they do have some characteristics that investors should be aware of. Find out more in the article “Convertible bonds”.
Long-term investing, the key to being successful with shares
Even though bonds and fixed-term deposits are generally lower-risk investments, investors should still not shy away from shares in difficult times. Investors with shares may feel the effects of crises and corrections more severely, but if you look back over a long period of time, you will see there has been a positive trend on the stock markets over the years. And so, those investing over a longer period of time in particular should also consider working with shares. As a rule of thumb, the longer your investment horizon, the bigger the equity component your portfolio can have. The reason for this is that, in the long run, the volatility of many shares amounts to an upward trend. This means that investors who are capable of taking a bigger risk and staying invested in the long term can supplement their portfolio with selected shares, and increase their prospects of making higher returns in the process. Investors who need their money again in a short space of time and who want an extremely cautious strategy should mainly stick with bonds.
Certainty through broad diversification
Whether you’re investing in bonds or shares, good financial security will provide you with a portfolio in which all sorts of different asset classes, countries and industries are represented. If you make diversified investments in this way based on your own personal investor profile, you will minimise the risk of losing money if there is a negative market trend. You can find out exactly how diversification works in the article “Diversification – why you shouldn’t put all your eggs in one basket”. It is not easy to put together a diversified portfolio. After all, there are so many different types of fund out there. A fund is a collection of various shares, bonds or real estate from all sorts of different industries or countries, depending on how the fund is made up. There are even funds that are tailored to different investor profiles.