Fear is in the air. Fear of recession. Fear of inflation. Fear of a bottomless pit to the market. The greater the fear, the more investors navigate to safe harbors. But obsession with risk avoidance can lead to bigger problems. Here are some important considerations:
1. Want a recession-proof investment? Start by thinking long term. When it comes to beating the recessionary doldrums, time is your best friend. Begin with a commitment to a diversified portfolio. Intelligent diversification is the most tried-and-true means for mitigating your risk.
2. Buy things that create and preserve value. American companies are a prime example. Think about it. You retain stability and foster growth when you invest in companies where 100,000 employees wake up every day fighting for better results and expanding profits through efficiencies and innovation.
3. Think in terms of evergreens. Start with utilities. They survive recessions. People are always going to need energy and telephones.
4. Shun mediocrity. In times of panic, it is common for investors to look for safety in cash, gold or even T-Bills. None of these are recession proof. The last six months have illustrated the vulnerabilities of each. Cash is great if you time it well, but keep in mind that the value of a dollar has gone down 95 percent over the last century. Typically, gold rises, but the return is not sufficient. Gold needs to make a minimum of 4 percent a year just to match inflation.
5. Change your perspective. Stop being a market “victim.” Worry less about a mediocre survival in the short term, and more about meaningful success in a decade. When it comes to building your financial future, you will be predator or prey. If you are one of the majority of investors who insists on smooth swimming in choppy waters, expect trouble. You will never find safe harbor because you are fretting over Russia, monkeypox, Covid-19, Taiwan, and increasing interest rates, while failing to consider the decline in the purchasing power of the dollar, or the fact that the Dow increased from around 60 to more than 11,000 in the 20th century. You should be more afraid of the consequences of never risking your capital, simply to earn a mere 2 percent. It’s not worth it. At best you will create a life reliant on family and Social Security that will only lead to regret.
Summary: Avoid short-term solutions that produce a mediocre result at best. Invest in evergreens and substantial American companies which thrive on an employee base dedicated to efficiencies and excellence.
Erik Weir is the founder of WCM Global Wealth in Greenville and the author of “Who’s Eating Your Pie?”
This article was published on October 3, 2022, and published in the Charleston Business Magazine and the Greenville Business Magazine.