Investing defensively can be hugely beneficial in uncertain times like the present. This would mean changing one’s risk choices and return expectations. This is hardly going to be easy.
Historically, investors always played for the highest returns at all times. In a growing economy, this strategy seemed to work for a while. Yet, Investors seeking higher returns at all times often fail to invest defensively, exactly when they should be trying to do so.
The quest for returns actually makes investors do exactly the opposite of what they ought to do. This is entirely avoidable. When faced with uncertain times and a de-growing economy, it makes eminent sense to lower return expectations, improve one’s defensive investment stance, scale-up defensive asset classes and create more liquidity. That would ensure every investor is ideally prepared for the unexpected crash or market meltdown.
Most investors faced COVID-19 completely unprepared. Given the prolonged battle against Covid-19, the economy is going to face a series of challenges and this will impair the ability of businesses to return to pre-COVID profitability.
While the markets are likely to see liquidity-driven sentiment, every investor must use this sentiment to raise their defensive bets, scale-up defensive assets like gold and debt, and improve overall liquidity. The coming months should be utilised to prepare portfolios for the long haul, and be battle-ready for the extended economic challenges ahead.