Among the countless ways in which the COVID-19 pandemic has impacted our world, one is that it has changed the outlooks and attitudes of many investors. This is an inevitable outcome of any large-scale crisis that impacts economies: Markets struggle, portfolios crater, and even amidst recovery, a new nervousness can settle in.
For some, this nervousness is balanced out by a sense of optimism. Indeed, some will even take to looking at a crisis as the best time to buy stocks — a way of securing high-value assets at unusually low prices. Undoubtedly there is a certain logic to this, and some have already seen profits from this practice as various markets have recovered over the course of the year. But for other investors, understandably, nervousness takes the lead. Witnessing a crash as sharp as the one we saw in the spring of 2020 can make one wonder: What’s to stop a second crash from arising suddenly?
For these traders and investors, a more cautious approach can be reassuring. We want to stress that we aren’t necessarily calling such approaches safe or secure. Those are words that are tossed around far too flippantly in market talk, and the truth is even sound, strategic investments with great odds of success shouldn’t really be called safe. There’s always the chance that an asset will lose value for one reason or another.
Nevertheless, a more cautious approach to the market can minimize the chances of significant losses. And along these lines, the following three options may appeal to some traders reacting to 2020 with heightened nerves.
The Gold Market:
Conversations about gold representing a strategic market to turn to when stocks and currency values fall are so common they almost seem redundant. This doesn’t make the idea any less sound though. Gold has a proven track record of increasing its value in times like these, and sure enough it hit a new record high this past summer. It hasn’t performed quite as well since, as the pandemic has gotten under marginally more control and economies have begun to recover. But gold also hasn’t crashed — and rarely does in particularly dramatic fashion. Cautious investors looking for markets that are unlikely to hurt them, and may help them, could stand to take a look at gold.
A CFD, or contract for difference, is something some traders haven’t even heard of — but that ends to appeal once you learn about it. Essentially, trading stock via CFDs means speculating on the prices of publicly-listed companies without having to buy their stock. It is, for all intents and purposes, a wager that a stock price will go up or down over a given period of time. And it can intrigue cautious investors for two particular reasons. One is that the magnitude of a loss won’t hurt you; if you guess price direction incorrectly, you’ll lose your investment, but it will rarely be as catastrophic as holding a stock that plummets during a market crash. The other is that if the market does take a downward turn again, you can actually trade CFDs such that you profit on losses as well. Your “wager” can go in either direction, and so long as it’s correct, it pays off.
There has been debate over index funds in light of the events of 2020, and some of them have proven more volatile than one might have expected. Almost by definition though, these are designed as conservative, passive investments. An index fund is a bundle of assets that are traded as one, that you can simply buy into and cash out of at your own disclosure. Naturally, if there’s a market-wide crash, an index fund can drop precipitously. But generally speaking part of the whole idea of a bundle is that the collective value is less likely to fall; if one or two stocks drop off, the others should typically carry their weight. This is never guaranteed, but it’s another option that can appeal to nervous or cautious investors.
If you’re looking to buy into a fresh investment market like one of these, you should still do your personal due diligence to make sure it’s the right choice for you. But in general terms, the conditions inherent in these markets and methods can be of interest to investors taking a more cautious approach.