Recession: what can investors do to protect their money?

Jana Hlistova

May 08, 2022

Welcome to our #114 weekly newsletter.

“For women taking control of their financial future”

-Jana Hlistova

From The Purse

In this week’s newsletter, we focus on what investors can do to protect their money before a recession starts.

The warning signs that a recession is likely are here including surging inflation, rising interest rates, the war in Ukraine and slowing economic growth.

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You can review the news in brief so you stay on top of global financial, economic and investing trends.

I hope you enjoy this week’s newsletter.

Until next week,

Jana

Recession: what can investors do to protect their money?

Now is a good time to get ready for how to manage and invest your money

Threats to the economy has increased around the world.

From surging inflation, rising interest rates, war in Ukraine to falling economic growth, the warning signs of a recession are plentiful, as reported by the Financial Times.

In the UK, inflation is forecast to peak at 10%+ in Q4 2022 when a fresh jump in home energy bills is expected in October. The interest rate rise to 1% brings borrowing costs to levels unseen since the recession caused by the 2008 financial crisis.

Households are cutting back on spending, unemployment is expected to rise. And the UK gross domestic product (GDP) is likely to reverse in Q4 of this year.

So what can investors do to protect their money?

Make a plan. Think long-term: investors should allocate their money based on a financial plan which takes into account their goals, time horizons and risks. It is impossible to ‘time the market’, so allocating capital or assets appropriately before the start of a recession is key. Crucially, investors should avoid ‘panic selling’ or selling their investments during a downturn, if they can help it.
De-risk your portfolio: allocate capital to ‘safe-haven assets’ which can de-risk an investment portfolio. Traditionally gold has been regarded as a safe haven. According to data, gold has outperformed stocks during economic turmoil. Over the last few years, bitcoin has been considered a ‘store of value’ and a hedge against inflation and younger generations prefer this option (to gold). For some investors, investing in property is considered a ‘store of value’.
Diversify your investments: a well-diversified portfolio can prevent serious losses and buffer against market volatility. A well-diversified portfolio might include fixed income, equities, alternative investments (including crypto and NFTs), private equity, and real assets (including property or physical art). The Nasdaq historially underperforms during a recession, so diversifying across other industries, sectors and asset classes is important. Conversely, many investors can buy tech stocks at a huge discount at the moment (ie 20%-60%+ discount).
Not all recessions are the same: given the slow growth outlook, recessions may become more common but may have less impact on investment portfolios. The looming recession, for example, does not mean we are headed for The Great Recession of 2008/2009.

What next?

(Re) Listen to Money printing, rising inflation and what this means for your money with Shaun Richards.
(Re) Listen to Women and risk with Barbara Stewart.

Financial news

The Nasdaq 100 has lost bottom line just 1.3% this week after a rollercoaster ride. Cloud stocks were the big losers, and semiconductor stocks were the winners. On Thursday, the Nasdaq ends an ugly session down 5.1%, worst day since September 2020. The Nasdaq is down approximately 22% from ATH.
US Federal Reserve raises rates by half a percentage point -the biggest hike in two decades to fight inflation.
US yield curve bear-steepens this week as a result of the US rate hike. US 2s/10s yield spread rose 20bps this week.
Bank of England (BoE) warns of UK recession this year as it lifts interest rate to 1%. The highest level since 2009, and sterling hits 2-year low.
UK forecast shows inflation peaking at 10.2% in Q4‘22. GDP expected to contract 0.25% in 2023, +3.75% in 2022.
Billions in wrong-way ETF bets placed just before Thursday and Friday rout: almost $600m was invested into the ARK Innovation ETF, $426m into the ProShares UltraPro QQQ ETF, a leveraged product that delivers three-times the return of the Nasdaq 100.

Crypto: bitcoin, ethereum, DeFi & NFTs

Crypto is trading like Big Tech. Bitcoin jumped after US Fed's Jay Powell quashes talk of 75 bps rate rise. But crashes shortly after. (See the current bitcoin price).
$100bn crypto crash sends the price of Bitcoin, Ethereum, XRP, Luna, Solana, Cardano and Avalanche into free fall. The sudden crash comes amid a technology company-led stock market sell-off in the aftermath of the Federal Reserve's hawkish 50-basis point interest rate hike.
Robinhood adds Grayscale Bitcoin and Ethereum trusts. GBTC and ETHE are investment products that trade like a stock and allow investors to get exposure to the price of bitcoin and ethereum (without owning them).
Gucci and Starbucks go crypto to bond with customers. Gucci will allow in-store crypto payments via a QR code which allows customers to execute the payment from their crypto wallet. Starbucks is launching NFT collections to ‘allow for access to exclusive experiences and perks.’
Moonbirds, Solana Boost NFT Market in April as Sales Jump 45%. The NFT trading volume soared last month, and May is already off to a hot start thanks to Bored Ape metaverse land.

Coffee Break? Read This

We’d love to hear from you. Get in touch with Jana via the The Purse website or tweet @jointhepurse and @janicka.

The Purse provides content for informational purposes only, we do not recommend products or services or provide investment advice. Please do your own research or speak to a financial adviser.