Finding value in the stock market can feel like hitting a moving target, and even more so during periods of uncertainty. Consider employing the following strategies when geopolitical shocks and global turbulence is looming.
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- Focus on value investing
- Take a long-term approach
- Diversify your portfolio
- Choose companies that are resilient to downturns
Focus on Value Investing
Finding strong companies with sound fundamentals is always a smart move, but this is especially the case during periods of uncertainty. Using TipRanks’ Smart Portfolio tool can help you easily monitor your investments, review the performance of your stocks, and explore other potential sectors.
In general, investors tend to divide companies into value propositions, growth opportunities, or a blend of both. Value stocks represent companies with that are well-established, profitable businesses. These companies are most likely to be the best stewards of value during downturns. They tend to be those who have already demonstrated long-term viability, over both ups and downs in the market.
Those steadier firms are well-positioned to weather turbulence, especially those with tried-and-true businesses possessing sufficient cash on-hand. While these stocks should not be expected to provide high multiples of growth, they should continue chugging along even when times are tough.
Take a Long-Term Approach
Though people can have different definitions for what constitutes long-term investing, many consider this to mean holding onto assets for at least five years at a time.
Over the long-term, the stock markets have generated enormous value for investors. While this is true on average, there are both years of famine and years of plenty.
In other words, there will be years when the market does extravagantly well, with your portfolio growing by leaps and bounds. However, there will also be periods when your holdings will suffer losses, and your wealth will shrink.
Long-term investing should help you to find a positive balance in the aggregate. It will also have the added benefit of allowing you to enjoy the benefits of compound interest, whereby your gains will start to earn their own returns over time.
Diversify Your Portfolio
Diversifying your portfolio is a sound strategy regardless of the economic headwinds, but it is especially important when dark clouds are gathering on the horizon.
Having a diverse portfolio–in equities, bonds, and savings accounts–can help shield you when the economy goes south. The value of stocks and bonds will often travel in opposite directions, so holding both will help you remain well-positioned even when the economy goes dormant.
This is true for the types of stocks you might want to invest in as well. Looking to own companies from a number of different market segments will help you avoid the pitfalls that a specific sector (or even one company) tanking your holdings.
Using TipRanks’ Smart Portfolio is a helpful tool for monitoring your portfolio and ensuring that your investments are from a diverse array of sectors.
Choose Companies That Are Resilient to Downturns
Finding companies that are resilient to downturns can help you do well, even when the market does not. During recessions, individuals and households will look to cut down on discretionary spending. Though they will forgo non-essential expenses, they will continue to make purchases on necessary items.
A good strategy during these periods is to identify companies and industries selling goods and services that people cannot do without, such as food and health products. Discount retailers are also good options, as individuals looking to save money will be more likely to be searching for bargains.
It is also important to keep in mind that economies are cyclical, and what goes down will eventually go back up. Do not neglect to think about the day after the recession ends and the market begins to recover. Growth stocks–especially from the technology sector–can experience rapid increases once the economy bounces back. If you are able to purchase them at low prices during the depths of an economic slowdown, you will enjoy the benefits when the market picks back up.
Conclusion: Picking Stocks in Uncertain Times
When the market is surging, most people will find that their portfolios are doing just fine. Picking stocks in times of uncertainty is more challenging, and these strategies can help you navigate these periods of peril.
Try to focus on value investing by looking for good, strong, well-established companies. If a company has a strong historical track record, chances are they are doing something right. They have weathered uncertainty before, and should be well-positioned to do so again. In that vein, taking a long-term approach will help you to maximize your gains a the stock market has historically done well, albeit with both dips and peaks along the way.
Moreover, diversifying your portfolio is always a smart move. Balancing out your exposure to industries and specific companies will prevent one sector-specific issue or problem from sinking your overall returns. Lastly, look for companies that are resilient to downturns. If you sense that a downturn is coming, consider finding industries and companies that tend to do well when the markets are depressed.
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