Investing is all about freedom. You're free to use lots of different options to try to build wealth, and of course, you're also free to lose money. Your path is entirely built on the choices you make, and in a year like 2020, good judgment is key. To make the best decisions about managing your money this year, keep these five tips in mind.
The single most important factor determining the value of something is how much of it is available. That's why gas prices plummet when oil production increases, beef skyrockets when the supply is disrupted, and overstocks sell for pennies on the dollar at your local discount store.
Scarcity is the reason that the price of gold moves steadily upward. Yes, there are some ups and downs, but those are a result of investors moving into and out of the gold market because of what's happening in other markets. Gold itself is very stable, with only a limited supply in existence--some of it mined, some still in the ground.
There are too many movies out there sending the message that you can become a millionaire overnight with this investment option or that one. While it is true that so-called "day traders" can pile up a lot of money very quickly, they can also lose everything they have very quickly.
The better strategy in 2020--and any other year--is to focus on steady, secure gains. The options that have the potential for a boom also have the potential for a bust. When you're planning for the long term, you can't tolerate that volatility. Look for the investment options that lack extreme spikes in either direction and have a long-term upward trend.
When the overall economy goes downhill, few investments do well. When segments of it are struggling, there are other areas where money can be made. If you can read the 2020 economy and figure out which segment is which, you can do quite well with investments. Make the wrong choices and you'll lose money.
For example, the cutbacks in travel and work came at about the same time as a big increase in production from OPEC. That's what sent gas prices to historic lows. If you had money in oil and saw the cartel's changing strategy, you might have liquidated your oil holdings before the pandemic made things even worse. At the same time, you might have realized that the need for goods wouldn't end and chosen to invest in shipping companies and online retailers.
When the economy hits tough, unpredictable times, the usual response in all sectors of the investing world is for prices to soften. That goes for precious metals, commodities, and real estate just as it does with the stock market. Some people panic and sell, but a soft economy is a buying opportunity.
Remember that low values only matter when you sell. You have to ride out tough years like 2020 and remember that in time, the value will rebound. You also have to remember that those tough years are when the wise buyers are purchasing investments. In fact, it's those spending sprees that often spark a recovery. Look for the investments that are at a low point and buy before they bounce back.
Whether the economy is good or bad, it's always wise to diversify your holdings. This helps reduce your risk, and it can also serve as a sort of field test for new options. You can read up on new opportunities then put a little money in them to see how they do.
Of course, the overall idea of diversifying is to spread your risk. If one area experiences a downturn, you have a chance at a strong performance elsewhere that stabilizes your overall portfolio. Tried and true options like precious metals are always a good anchor in this situation, as are treasury bills. In uncertain times like these, that mix of options is more important than ever to keep you on track.
With civil unrest, a pandemic, and an upcoming presidential election, 2020 has a rare combination of features. Wise investment moves will help keep you financially sound for 2021.
Katie earned a BA in English from WWU and loves to write. She also adores hiking in redwood forests and photography. She feels happiest around a campfire surrounded by friends and family.