How to Invest in an Uncertain Economy

Over the last few years, uncertainty has become the only certainty in the economy. This is probably set to continue, even before whisperings of the next potential crash, financial analysts were referring to the delicate and volatile market conditions as ‘the new normal’. Where should an individual or institution invest in these uncertain times? Sovereign debt used to be a bolthole for investors in difficult times, but with ratings agencies downgrading the credit worthiness of major governments, including the US and Japan, government bonds no longer seem the safe investment they once were.

The question of how to invest in an uncertain economy is a fraught one, but investors should take heart in the fact that no matter how bad things get, there is absolutely always someone making money somewhere. Everyone has their own objectives and timescale when investing, but there are still some tips which can help reduce uncertainty.

As points out in a recent piece, gold is always a safe place to invest in uncertain times. But with the price of gold at record highs around the time of writing, having recently reached the milestone of $1,900 an ounce, investors can be forgiven for wondering how much higher it can go.

The volatile stock markets have scared off many investors in light of the huge falls recorded by Wall Street and Dow Jones in the aftermath of the US rating downgrade, but with the market currently around 10% lower than this year’s peak, now is actually probably the time to invest in the stock market – as long as investors choose their stocks carefully.

Buy low, sell high, elementary financial advice, but investors also need to remember Warren Buffet’s famous maxim that “the stock market is a device for transferring wealth from the impatient to the patient”. Although the current volatility in the markets mean that investors can make some quick bucks, a more sensible strategy is currently to buy low and hold on to an investment for as long as possible, having the nerve to ride out the current storm.

Diversification is also a key skill in these uncertain times. Rather than putting all their money into gold, or the stock market, or even a mixture of the two, investors should be looking to maintain a varied investment portfolio to hedge against losses in one or more of their investments. Investors with expensive hobbies and interests could consider the vague world of alternative invesetment, using their money to follow in their interests, by collecting fine wines for example, or stamps, comic books, baseball cards, anything collectable which is likely to hold or appreciate in value while providing pleasure for the investor.

One thing is for certain, with inflation at high levels in many countries around the world, and interest rates slashed on standard saving accounts, investors must be bold, tenacious and clever if they want to make a decent return on their money in these uncertain times.