Indian markets commenced the week’s first trading day on a pessimistic note as both NIFTY50 and SENSEX experienced notable dips. This negative trend was reflected by broader markets as well. NIFTY Realty and NIFTY PSU Bank emerged as the top losers, marked in red, in the early trading season. The India VIX reached a new 8-week high, surging by over 19%, and crossing the 17-mark.
This dwindling in Indian markets can be primarily attributed to the unrolling of the yen carry trades and soaring geopolitical tensions. It is related to a probable slowdown in developed economies.
Every investor fears a significant collapse in the economy. The fear is evident: in an instant, you can lose money and retirement funds that you saved diligently for years. However, thankfully there are measures that you can take to save your assets from a significant market crash or a global economic deflation. Preparation and diversification are two key defensive strategies that can help you stand up to a financial collapse.
Diversifying your portfolio, that is putting your money in a wide range of investments, is the best way to save yourself in times of crisis, or a bear market. You should allocate the majority of your retirement savings to individual stock mutual funds or ETFs and stocks. If you see a crisis impending, be ready to move a portion of your invested assets to safer options. Today, investors can pick from a range of investment options, where each has different risk levels. These include bonds, stocks, real estate, cash, cash value life insurance, derivatives, precious metals and annuities. Furthermore, you can broaden your portfolio to other investments like oil and gas projects.
Most professional traders shift to cash or cash equivalents whenever there is significant market turbulence going on. Doing the same before a market crash occurs is recommended. If you depart from the market quickly, you can re-enter at much lower prices. In due course, when the trend reverses, you can profit more from the ensuing appreciation.
One should not place all their saving in guaranteed investments. This is considered an impractical move since the returns they give are very low. However, it’s wise to assign a small portion of your assets to guaranteed investments as a stable option so that it won’t plummet as the market crashes.
If you are a short-term investor, then consider banks CDs and treasury securities. On the other hand, long-term investors should eye indexed universal life insurance products and fixed or indexed annuities, as the returns you’ll get from these investments are much better than Treasury bonds.
Furthermore, you can benefit from the competitive income by investing in corporate bonds or stocks preferred by blue chip companies, that too at a moderate risk.
If you predict a major market downturn, position yourself in such a way that you earn profits from it. Your approach will depend on your risk tolerance and time horizon. For instance, if you anticipate that your stock will decline, think about selling the stock short and buying it back when its price nears the bottom. If you are already owning a stock, then this strategy will present itself to be much simpler, as you will be able to deliver shares to the broker and reimburse the difference in price cash.
If you anticipate looming market turbulence and have significant debts, consider liquidating some of your holdings to pay off the debts. This is especially wise if you have a lot of high-interest debts like consumer loans or credit card balances. By liquidating most of your holdings, you can ensure a comparatively stable financial position amidst a bear market.
As the market experiences turbulence, the move towards reducing your monthly obligation will turn out to be fruitful as it will help strengthen your financial resilience and maintain stability during uncertain times.
Even if you are not able to directly safeguard your investments from a market crash, there are still other ways which can aid in reducing the impact of losses. One such strategy is tax-loss harvesting for taxable accounts. To realise the loss, you sell your losing positions before year-end. To avoid a “wash sale” by the IRS, you then repurchase the positions at least 31 days later. This allows you to offset losses against gains and carry forward any excess losses, deducting up to $3,000 annually from ordinary income.
There is another strategy that can help you balance the market collapse. You can convert retirement plans or traditional IRAs into Roth IRAs while their prices are still low. This will reduce taxable income upon conversion. This strategy will prove to be especially beneficial for you if you are in a lower tax bracket.
