An economic crisis has an impact on everyone’s future: insolvency, unemployment, social misery, and political unrest. History teaches that negative economic growth is not the exception, so it can never be ruled out. In these times crisis, even financial institutions like https://looselending.com/ would be tight on releasing loans not unless mandated by governing bodies.

How To Protect Yourself From An Economic Crash

Precaution: Spread the risk

If you want to protect assets from the effects of a crisis, there is only one answer: spreading risk across different asset classes. That means invest small or large portions of your investment in other areas like real estate, stocks, gold. This asset allocation, i.e. the diversification of investments across different asset classes, is called asset allocation. Risks can be eliminated through the greatest possible diversification.

Spreading risks sensibly even on a small budget

You don’t have to be rich for that. You can even invest with only 1,000 euros. You can take half of the 1,000 euros to the bank and buy them from the remaining 500 euros in investment funds. You can then, for example, put 400 euros in equity funds and 100 euros in a real estate fund.

The consumer advocate recommends that investors wishing to invest in shares buy equity funds that invest worldwide. Index funds are the first choice because they are particularly inexpensive. So you can invest in the approximately 1,700 companies of an MSCI World Index worldwide with just 50 euros at one go. The MSCI World is a stock index that reflects the performance of stocks in 23 industrialized countries worldwide.

The advantage of diversification is that the values ​​of the investments never all move in the same direction, i.e. rise or fall at the same time. If the stock markets prosper because the economy is secure and stability increases, the price of gold tends to fall. We have had this in recent years – before it was the other way around.

Equity diversification through index funds

Risk is spread through simultaneous investment in interest papers, real estate, gold, and shares. However, you can and should spread the risk within shares again and not just buy one share, but invest in hundreds or thousands of shares via index funds.

Is gold always worth gold?

Various asset classes continuously generate income: In the case of real estate, this is renting, in the case of shares, the dividends, i.e. the profits. However, gold does not generate any returns. Historically, the precious metal is a means of payment for this, a globally recognized currency that no country can easily abolish – while paper money can be declared worthless.

Gold will not become worthless. The gold price history is strongly related to crises: if there is political unrest or unstable financial markets, the gold price tends to rise while other values ​​such as stock prices fall. So if you invest in gold at the same time, you have a stabilizing component – that’s diversification.

Security, Risk, And Profitability

When investing money, you have the choice between security and risk but more profitable products. A safe product, such as interest papers or time deposits, currently offers no or only a very low return. Shares, on the other hand, are less secure because of the ups and downs on the stock exchange, but they also shed more – but only in most cases, not always: If you bet everything on one share and it goes wrong, you have lost all your money.

If you go widely into the stock market, it cannot happen. There is no scenario in which all stock corporations worldwide lose value and fall to zero.

Consumer goods are not suitable investments

Paintings, expensive watches, vintage cars, consumer goods are not suitable as an investment. Commodities would only help secure assets if you assumed they were worth more at the time of sale than they are now – but in a crisis, people tend to have less money than before, and tend to spend less than normal. In addition, consumer goods can break – then you have none of them.

Real estate is riskier than real estate funds

Many people want to fulfill their dream of owning a home and see it as good protection against crises, especially when interest rates are low. The rented or saved rent of a property represents a return like an investment. In addition, having your own home means more quality of life if you live in it yourself.

Nevertheless, such a direct investment is significantly riskier than a real estate fund that invests in several properties, the expert points out. Historically, real estate is not particularly attractive as an investment. The advantages and disadvantages of such a weighty investment must therefore always be weighed up in individual cases.

Grandma’s savings stocking makes sense today

What about the good old piggy bank or the emergency nail under your pillow? The expert does not consider Grandma’s tricks absurd. This type of savings brings zero interest, but the money is available at all times.

Many bank customers still prefer cash

Old-fashioned ways of securing wealth can also make sense for retirees: Anyone who has received the money from life insurance and does not want to invest it in the long term is well advised to use a savings book to prepare for a need such as dentures or the cost of a nursing home at short notice to be.

Post Author: Arden Davin

Inspirational Quote about Finance: "Making money is a hobby that will complement any other hobbies you have, beautifully."