The current, eight-year-long bull market has been fueled by low interest rates, fiscal stimulus, economic growth and an administration focused on supporting business. But equities can’t continue to push higher for much longer. Investors are starting to look for the safest place to put their money as uncertainty grows.
A number of factors, whether it be geopolitical concerns or aggressive Federal Reserve actions, threaten to bring the bull market to a halt, leading many savvy investors looking to diversify and protect their gains. Here’s a look at three options to hedge against market downturn, according to a recent Nasdaq article.
- Cash: While money may not be considered an investment, it is a necessary tool in all investment strategies. Market rate interest doesn’t really compare to the potential rate of return in the stock, market, but holding cash in a FDIC-insured account is undoubtedly the safest way to invest. That being said, the FDIC only insures up to $250,000 cash. If you have more than that, it may be wise to spread it across multiple accounts to be sure you are covered. Having easy access to cash will also allow you to move quickly on new opportunities when the bearish market presents itself.
- Peer-To-Peer Lending: This strategy provides diversification while offering returns as high as 10%. When approached correctly, it can also be one of the safest ways to invest at the moment. The key is to diversify across many loans, eliminating the risk of default because you won’t sink the entire investment if a single loan defaults. Investors are able to choose their risk profile based on the desired return. The riskier the borrower, the higher potential for return.
- Fixed-Index Annuities: Designed to provide lifetime income, FIAs are among the safest ways to invest at this time. It’s true that annuity products can be very complicated, but fixed-index annuities are simple in that they pay a predetermined interest rate over a fixed number of years. Additionally, interest may also be credited based on the percentage change in the value of a broad market index. The investor is guaranteed return regardless of what the stock market does. And if the stock market moves higher, the return increases as well. Be certain to consider the cap of the index return, withdraw penalties and tax implications when considering adding a fixed-index annuity to your portfolio.
It is important to remember, that while these methods provide a “safe” way to invest right now, there is no strategy that is completely without risk. But if you’re looking to hedge against an impending bear market, consider increasing your cash position while deciding if peer-to-peer lending and/or an annuity are the right investments for your unique situation.
Written by Rachel Summit