Team Lendermarket

What opportunities do harsh economic times bring investors?

When markets are in the red and prices for everyday items soar high, it creates huge uncertainty in the market. In this article, we’ll highlight some compelling opportunities that harsh economic times bring for investors.

What is the Status Quo?

We’re still in the middle of an economic crisis, with high inflation rates and low stock prices compared to last year, causing fear in the market. Coupled with energy and gas issues in Europe, the sentiment among investors is rather negative.

The inflation rate in the European Union in June 2022 was 9.6%, which is a steep rise from 2.2% a year earlier. But every crisis also presents an opportunity for those willing and able to take it and who are open to working through it.

While your personal influence on stock prices and inflation might be marginal, there are still things you can do during harsh economic times to set yourself up for success in the future.

How to Use Trying Times to your Advantage

In the following section, we’ll show how you can use the current economic situation to your advantage. When there is less hype in the market, and things become more silent, it allows you to reflect and build a strong foundation for the future. Perhaps investing during a crisis could also make sense for you.

Re-evaluate your investments

When designing your portfolio, you likely had a specific strategy that you followed. For example, this could be keeping 80% of your capital in risky/volatile assets like stocks and 20% in less risky assets like bonds. Maybe you also invested in some trendy stocks that promised high returns.

A crisis could be an excellent time to review if your current strategy suits you. For example, an investment in stocks usually brings ups and downs, so during a down phase, it is a good idea to check in and see if you can handle your portfolio being in the red.

Maybe you also want a higher share of safer assets in your portfolio so that assets like bonds balance out the more volatile investments. Take your time to review and evaluate your investments, how you feel about them, and decide if they still make sense for you.

Focusing on increasing your income

Harsh economic times that bring high inflation and increasing prices can be challenging for households with a lower income. And even if you earn a good amount, you might find that you don’t feel like investing currently.

Nevertheless, you can still make your net worth grow by finding ways to increase your income. This could come in the form of:

  • Making a passion into a side hustle
  • Look for an additional part-time job
  • Changing companies
  • Asking for a pay increase from your current employer

Hone your skills

You can also use periods of crisis to develop your skills further. For example, learning to code and becoming adept at it opens up many avenues, since developers are among the best-paid jobs. Additionally, in our digital world, a developer is always needed – be it for software, a website or server applications.

But it doesn’t have to be just coding. You can enhance your drawing, writing, SEO, fitness, or any skill. By doing so, you increase your human capital and the potential to earn more money down the road because you can seek out a new career or become self-employed.

Fill up your ‘Rainy Day Fund’

A ‘Rainy Day Fund’, or ‘Emergency Fund’, is money you have on the side for an emergency and when times are tough. It covers unexpected expenses and thereby prevents you from taking on debt, which often comes with high-interest rates.

Sure, with high inflation your money gets devalued if it’s just sitting in the bank – but weigh that up against the peace of mind this money buys you. Imagine having two ,three or six months’ worth of your everyday expenses put aside and how secure you would feel.

With this approach, you can think much more long-term because you know that even if something doesn’t work out in the short term, you can still pay for your rent, food and family. This also saves you from needing to liquidate your long-term positions in case you need cash urgently.

Assess your ability to take risk

This ties in with the first point we mentioned – evaluating your investments. Everyone can be a ‘good’ investor in a bull market when there is only one direction the market is moving. However, it’s different when you’re in a bear market and prices are falling.

It’s not uncommon to have your legs turn to jelly in these harsh economic times. This is the best moment to reconsider, take a deep breath and see how much risk you can really take on because the willingness to take risks and actually taking the risk in a bear market are two very different animals.

Acknowledge your feelings towards your losses

Time and time again, you hear people say to keep your emotions out of investing and approach it objectively. While this detachment sounds good in theory, in practice, only a handful of investors have this ‘superpower’.

Humans are emotional creatures, and this emotion flows over into all aspects of life. So if you have experienced some losses in your portfolio, see how you feel about that. Regardless of whether you feel sad about it or don’t mind because you have the conviction of a rising market, acknowledge these feelings and decide based on the previously mentioned points.

Conclusion

Harsh economic times can put you to the test. Many interesting questions arise, like did you make a wise choice with your investment? Do you believe and understand what you invested in, and do you see a future? All these questions can help you decide whether you should restructure your portfolio.

Furthermore, you can use these challenging moments as an opportunity to hone your skills, develop yourself for the future, fill up your emergency fund and perhaps seek out additional income streams. That way, you build a solid foundation for the future.

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