7 tips for do-it-yourself investors in turbulent stock market weather

Volatile energy prices, rising inflation, and reduced purchasing power: Not only is life more expensive, investing yourself with the goal of protecting your savings is more complex than ever. Jürgen Hansens, KPMG Deal Advisory and PhD in Applied Economics, collected in his book Investing in bad times Several do’s and don’ts on this topical topic. Discover a bunch of ideas: “Keep your cool when the markets are storming.”

1. Create an investment portfolio with different components

Sometimes people get pushed too fast into stocks. They will yield the highest return in the long run. But not everyone has such a long time horizon, he says. Young investors often think that they still have time to recover from a stock market crash, but they shouldn’t forget that they may want to buy a house or apartment in a few years. Therefore, the ideal portfolio, in my opinion, is made up of different investment vehicles, with the goal of meeting three needs. 1) By creating a cash reserve, you can respond to new opportunities and deal with unexpected or difficult circumstances. 2) With defensive investment products, such as (government) bonds, term deposits, and gold, you can protect your financial “health”. 3) Riskier asset classes like stocks can be beneficial, especially for achieving your long-term financial goals.”

2. Avoid companies with a lot of debt and choose companies with a reinforced concrete balance sheet

For stocks, Jürgen Hanssens prefers a certain type of company. “Companies that fundamentally want to grow are investing continuously and taking on debt to do so. Associated debt risks are not given much attention, while the positive elements of a strong cash position are often underexposed,” it seems. “Cash enables a company to respond to various opportunities. This is why I prefer to choose companies with a strong monetary position rather than companies with a lot of debt. Compare it to an emotional bank account, a concept by Stephen Covey: deposits you make have a positive effect, while withdrawals have a negative effect. Those who have more withdrawals than deposits are negative. People who withdraw larger amounts than deposits are indebted to others, and will eventually see their relationships with these parties deteriorate. Such attitudes They must be avoided.”

3. Focus on distributed shares, but also monitor the sustainability of this return

The dividend is another important asset to watch, but not all dividends are created equal. When stock prices fall, the potential dividend yield can look very attractive. But investors shouldn’t be blinded by this, that’s the advice. “A company is not required to pay a dividend. When the economy is taking a turn for the worse and corporate earnings are under pressure, companies will often cut or even lower their dividend. If the potential dividend yield per share seems too high, you should also check the company’s dividend payout ratio. This indicates the percentage of dividends paid out as dividends. cent, you can assume that the market turmoil will hit the shareholders quickly. When choosing dividend stocks, it is best to look for stocks of companies that have been maintaining or increasing their profits continuously for years, or the so-called dividend aristocrats.”

4. Use ETFs to invest passively but avoid themed ETFs

“An exchange-traded fund, also known as a tracker, is a passively managed investment fund that is usually very diversified,” explains Jürgen Hansens. “The purpose of an ETF is to track an underlying stock market index as closely as possible. But in recent years, many thematic ETFs have also emerged: they invest in a specific niche or sector of the market, such as robots or sustainability solutions. These types of ETFs tend to be riskier. Some are speculative in nature, risking investing in a bubble or overhype. Moreover, the annual costs of such ETFs are often much higher than simple trackers in broad indices.”

5. Watch out for house bias in troubled times

A home bias indicates a local market preference. But staying under the steeple isn’t always the best option as an investor. “This pitfall is that you tend to place a lot of weight in your portfolio on investments from the home market. Academic literature explains this bias in home-based investments by the fact that investors are generally more confident and optimistic about investments that come from their own home market. This is partly because investors have access to more and more qualitative information about investments close to home. But to build a well-diversified investment portfolio, it is important to include different geographies and sectors in your portfolio. By investing on a global scale, you ensure that your investment portfolio is better diversified. As a result, they can be less affected by local or sectoral crises.”

6. Reducing damage rather than doing anything at all

Moreover, savers must get rid of their masochistic traits. “Today’s still high inflation is evaporating the purchasing power of your savings at an alarming rate. However, Belgians remain champions of depositing their money into a savings account.” There seem to be viable alternatives to this. “It’s easy to achieve a higher potential return based on, for example, term accounts, government bonds and money market funds. With these defensive financial products you won’t be able to beat inflation, but you can still to some extent limit the damage, i.e. the loss of purchasing power, without risking too much. An e-DEPO account is also an interesting alternative to a savings account. Although the government recently introduced a maximum total interest rate of 2.50 percent, a deposit account with the federal government still yields a higher yield. from many savings accounts.

7. Set your investment portfolio one hundred percent to your profile

“It’s less obvious than you think — but very important,” says de Hansens. “Before you start investing, it is better to ask yourself questions. To what extent can I deal with risks well? In risk, you can avoid unnecessary headaches and nights. Bon ChunkH!