Diversification: how to avoid losses the next time markets tumble
On Thursday, February 27th, 2020, global markets suffered one of the biggest downturns in history. If you were an investor, you were probably rushing to sell your stocks or gritting your teeth as millions of dollars disappeared in just a few short hours.
When the market goes up, it really goes up – but when it goes down it sure is bad isn’t it?
People always say your best defense against the uncertainties of investment is diversification. But what exactly does that mean?
Well, you probably know the saying, “Don’t put all your eggs in one basket.” You drop it and that’s all your eggs gone. The same is true of investment: don’t put all your cash in one thing or you risk losing it all when things go south.
So how does diversification work?
In stocks, you can diversify by splitting your money across different companies, countries, industries, and so on. But when unexpected global events like a pandemic or natural disaster occur, you’re out of luck betting on traditional markets. You need to get your eggs into some new baskets.
At MyConstant, we’ve created a platform that allows investors to diversify easily and cheaply on one platform. We want to help introduce you to some other options for investing outside the stock market. After all, investing is a steady climb, not a race, and there’s more than one way to the top.
Bonds are those boring things your grandpa bought from the US treasury back in the 90s with a 2% yield. The thing is, your grandpa might have made a great choice. Bonds are a great way to give yourself interest without tying to the market.
There are three main bond types: corporate, municipal, and treasury.
Corporate bonds are given out by companies looking to raise money for future projects like a new app or product.
Municipal and Treasury bonds are government-backed options to help them raise money for cities and national projects.
As a non-accredited investor in the US, you can buy US Treasury or T-bonds. They’re long-term (usually 10 years) and generally offer low risk/low interest. If the government has trouble repaying you it can just take the funds from tax dollars. But for the other two, you’ll need to go through a broker.
All bonds are given different risk ratings by rating agencies like Moody’s and Poor and Fitch. High-risk bonds have higher interest rates. Low-risk have lower interest rates. However, even risky bonds often are safer than stocks as they have a government or corporate entity promising a bailout if payments fall through.
Until recently, most risky bonds were the territory of the wealthy investor. No longer. Platforms around the world are bringing corporate lending to the people who need it most, letting you earn profits instead of banks. And it’s about time too, 10-year T-bonds are only yielding about .65% these days.
Peer-to-peer lending is probably the oldest form of investing on the planet. For thousands of years, people have given their neighbors funds and resources to help them out in times of need in exchange for future favors. And profits.
As communities become less connected and money more centralized, lending slowly became the realm of banks. For the past 20 years or so banks have lent out your hard-earned money for massive profits while they slap a paltry .05% interest rate on your savings. Or give you 2% and call it “high-interest” while they make 15%.
But times are changing. This past decade has seen a revolution in P2P lending. Platforms have sprung up all over the world giving investors like you a new chance to invest your money directly with other people and see real profits.
At MyConstant, we currently bring crypto holders from all over the world together with investors in the US for interest rates as high as 7% APR.
In our model, your funds are secured by digital assets and transferred through insured custodial partners to give you the security of banks but with better profits.
We currently match funds at an average rate of 7% APR and give you the option to earn 4% APY on your balance in our Flex lending pool.
Let’s talk more about crypto.
Commodities and Cryptocurrencies
When times are tough, investors love to put their assets into things they believe to be an inherent store of value. That’s not always paper money.
Take gold for example. People around the world have chosen to store their wealth in precious metals like gold because of its scarcity and value. But rare metals aren’t the only commodities out there. Other commonly bought categories include necessities like oil, or pork, or wheat.
As you may have guessed, you no longer need to go to the jewelry store or harvest wheat to own such commodities. You can buy them through market channels as “futures contracts”. These are deeds to a certain amount of a commodity stored by a third party. You can buy and sell them on the market much like stocks.
But what do commodities have to do with cryptocurrencies?
While cryptocurrencies like Bitcoin aren’t technically considered commodities under most laws, they are treated the same way on the market. Bitcoin itself is often nicknamed “internet gold”.
Sometimes, cryptos are even created to represent commodities. A business called Digix, for example, mints a digital coin pegged to the value of gold. A nonprofit called Swarm tokenizes assets like agricultural products and even real estate so that it can be traded on the blockchain.
But how does one buy into crypto markets?
Crypto and blockchain assets could very well be the future of money. But it’s a complicated field that can be quite difficult to enter. MyConstant offers a great tool for getting started in crypto trading, allowing investors to easily convert their fiat USD into USD-backed crypto stablecoins. We also give you the option to take out crypto-backed loans on our platform.
The world is yours
Notice I didn’t mention real estate?
Chances are if you’re already great at diversifying you’ve already invested in real estate. It’s the holy grail for investors as it generally appreciates(but be wary of bubbles!) and can be rented to ramp up profits.
However, for the average investor, real estate is something for the future. Entry prices are high and so is maintenance. There are more effective ways you can earn early in your career that won’t strain your savings and will make a future move to real estate that much easier.
For years advisors have pushed only a couple of options for diversified investing. However, there are limitless ways to invest.
Did you know some people flip old gym equipment from high-end gyms to low-budget gyms for a profit? Or that some people will preach for hours on why you should be putting all of your money in things like art or collectibles?
We live in perhaps the greatest era for diverse investing. There have never been so many ways to buy and sell from the comfort of your home. Fintech platforms today are making it that much easier for you to trade anywhere anytime.
Get online and start searching. And give us a look while you’re at it. Don’t let the market dictate your future.
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