In recent weeks, the global markets have suffered their worst performance in years as the spreading coronavirus continues to disrupt business. But what are the safest options for new investors or those looking to put their money elsewhere?
It’s been difficult to miss the news over the last few weeks: the markets are having a very tough time as the coronavirus disrupts businesses all over the world. In fact, the week ending the 28 February was declared the worst since the global recession of 2008, with the main US indexes dropping 10% or more and the FTSE ending the period 3% down and at its lowest since 2016.
Since Corvid-19 started to spread in late 2019, its impact on the business has slowly been building. The supply chain for many firms has broken down, especially those that rely on Chinese imports, forcing many brands to endure product shortages. There’s also been less demand, with a need to avoid the virus keeping consumers away from shops, bars, and restaurants. Transport companies have also seen a massive drop-off, with people avoiding non-essential travel abroad.
With business being hampered by the coronavirus, many firms have lowered their forecasts, which has severely knocked confidence in the markets. And, for those with their money invested in shares, they are faced with a vital question: do we sell now or endure the turbulence? Even those looking to make their first investments may be tempted to look elsewhere for better value prospects.
Below, I’m going to round up some of the alternative assets that may be worth considering in the face of the struggling stock market.
One asset that has sidestepped the uncertainty in the market is gold. While stocks tumbled globally, the price of gold has soared, reaching around $1,680 per ounce in the week ending 28 February. This was the most the commodity has been worth since February 2013, marking a seven-year high.
Gold seems to be bucking the trend on its own, as other commodities have suffered alongside the markets. For instance, oil and agricultural product prices have fallen as investors are spooked by the uncertainty, and the resulting sales have pushed the price of gold upwards. It could be the case that we’re seeing a ‘flight to safety’, with investors deserting risky commodities in favour of better performing gold.
However, it’s not all plain sailing for the precious metals market. The week ending 29 February saw a major sell-off of gold assets as investors sold up to meet margins that had become precarious due to the plummeting stock market. While the price eventually stabilised, it’s a reminder that, while gold is a fairly safe asset, nothing is certain in the current climate, so you still need to be wary.
If you’re a new investor or you’re wanting to take your money out of the unstable stock market, one option is to put your money into cash assets, which are the safest available. In times of uncertainty, it’s a good idea to boost your emergency savings, which can be done by moving money into savings accounts or cash ISAs. Both are also covered by the Financial Services Compensation Scheme, which provides an additional safety net should the provider fail.
Should the volatility of the stock market be keeping you on edge, putting some of your money into cash assets will provide some stability. What’s more, if you’re likely to need access to your money in the near future, funds in a savings account or cash ISA can be withdrawn quickly and easily, unlike a poor performing equity, which you may struggle to sell on.
However, when it comes to choosing an account for your cash, you still need to research the market to ensure you’re getting an interest rate that will beat inflation, otherwise the value of your money will be eroded over time. Also, be wary of any terms and conditions attached to the top rates as you may find you can’t access money penalty-free for a set term or unless you fulfil certain conditions.
With instability in the markets, you may be tempted to look outside traditional investments to find some value. And, you may be pleasantly surprised to see alternatives like peer-to-peer lending (P2P) performing well.
While P2P lending does still involve putting your money at risk, it offers a middle ground between the currently volatile stock market and the zero-risk option of cash assets. This means you can enjoy a better rate of growth than the majority of savings accounts and ISAs — Lending Works investors saw an expected annual return of up to 5.3% in 2019 — while also not putting your funds at the mercy of a coronavirus-spooked market that is performing at its worst since the 2008 crash.
It is worth remembering that to see maximum growth from peer-to-peer lending, you will probably need to keep your money invested for at least three years, so this is not a short-term option. That’s not to say you can’t access your funds though — the best P2P platforms will have an option for you to withdraw cash you have on loan.
The importance of diversification
While looking at alternative investment opportunities is worth it in the current climate, it is still worth emphasising the importance of maintaining a diversified portfolio, which is still the best defence against market volatility. This means finding a good balance between different types of assets, as well as investing in different interests and markets within each asset class.
For any investor, it’s likely not a good idea to sell all your shares and look for replacement assets elsewhere. Instead, you should aim to treat this period of instability as an excuse to review your portfolio and see if some of your money could be better placed in a few other locations. With a set of interests that is nicely positioned across different asset classes and markets, you’ll be in a much better position to see out the coronavirus crisis with your wealth intact.
With the global market currently balanced on a knife-edge thanks to the coronavirus and other factors, it’s a great time to take stock of your investments and consider some alternatives. Just be sure to find the right balance and diversification with any changes to your portfolio.
Richard Litchfield, is head of operations at P2P lending platform Lending Works,
Further reading: P2P property – alternative investment for returns in an uncertain market