With the global slowdown of economic activity, there has been an increased report of countries falling into recession. The coronavirus (also referred to as the COVID-19 pandemic) has been the main driver of this.
With all the uncertainty, Bloomberg postulates that there is light at the end of the tunnel. We will discuss the best practice to managing your wealth during financial uncertainties so that when the economy picks up again you will be glad you didn’t panic.
Over the last decade, peer-to-peer lending (P2P) managed to provide a more flexible financial industry as a result of the 2008 financial crises. Now that there is another global slowdown, it is important to see just how P2P lending can also help you weather the storm once again.
Keep a Cool Head and Don’t Forget That Every Downturn Has a Shelf Life
The saying “what goes up must come down” is something to keep in mind if you’re looking for some old school wisdom. Not only must “what goes up” come down, but it will go up again. Simply sticking to the facts and remaining calm will not only safeguard your investments, but it can even set you up for good future growth.
History keeps repeating itself and this includes the way people and organizations rebound after a downturn. Don’t get drawn into the hype that is often fueled by sensational news reporting. Simply stick to what you know, calmly consider your options, and proceed with caution.
Knee-Jerk Reactions Often Lead to Bad Decision Making
Being too reactive to something can be detrimental to your wealth strategy. During the 2008 financial crisis, many people were too hasty and lost a lot of money when they got caught up in panic selling.
According to Alicia Adamczyk from CNBC, it is better to sometimes leave your investments alone as this might not be the time to cash in. Patience is often rewarded to those who wait just to weather the storm.
Don’t Procrastinate—Try to Carefully Diversify
Look at your investment portfolio’s exposure to vulnerable industries. By no means are you supposed to rush to dump stock and get rid of it, but rather look at diversifying if possible. Even P2P investment platforms stress the importance of this.
This allows you to absorb downturns as well as reap the rewards of industries that do well at the same time, giving your investment a more sustainable growth trajectory.
According to Sonja Laud, diversification will be a good strategy for profitable growth as soon as the markets rebound. This shouldn’t be a short-term initiative, but rather a way to invest going forward. If your portfolio has a reasonable spread, then consider staying put.
What You Can Do Now to Sharpen Your P2P Lending Strategy
If your aim is to get rich quickly, then be aware that very high returns come with very high degrees of risk. Perhaps do a review to see what your short, medium, and long-term goals are, and place portions of your portfolio towards high-risk ventures without compromising your wealth portfolio.
If your outcome is to achieve long-term sustainable growth that can withstand any market condition, then ensure that you structure your portfolio to have a good spread across risk levels and even different markets. Do not limit yourself to just your home country—be sure to explore foreign options.
Gear Yourself to Be More Agile
Be it a traditional wealth fund or a P2P investment portfolio, the rules remain the same. Your wealth portfolio must have the ability to be agile in times of uncertainty. This is why P2P lending has been so successful over the last decade.
According to Korn Ferry, any kind of crisis might just be what helps you reevaluate what it is you are actually supposed to do. If disruptions like COVID-19 impacts any of your stakeholders, then be willing to respond to it.
One example of this could be to give your lender a payment holiday where the term of the credit agreement is merely extended. This gives the other party an opportunity to restructure and correct any impediments they might have as a result of a downturn.
Continuously Grow, Develop, and Research
As investors, we must never become complacent. Complacency was the direct result of P2P lending’s rise over a decade ago. The same applies to the level of exposure your portfolio might have to ageing or risky industries.
Research any trends that give you an idea that there is a potential market for a solution. Often, there will be someone with an idea that needs the startup capital to get it going. Do your research, ask for more information, and perhaps consider taking the risk.
Scenario Planning as Part of Your Wealth Creation Strategy
If you never considered the fact that some industries are essential, then now is the time. During downturns, history has shown that recessions, natural disasters, or pandemics have industries that will remain robust due to their essential nature. This may include energy production, health care, and some manufacturing.
Formulate various scenarios that impact your geographic area and industries. Then determine how you would like to spread your wealth investment exposure should one, multiple, or all the possible disrupters hit you all at once.
Scenario planning not only gives you better insight, but it is a way to safeguard your investment’s ability to achieve a balancing act no matter what the situation is. It also reduces your need to react in times of uncertainty.
Continue to Exercise Caution
The status quo has changed yet again, and we are reminded that change is constant. The best approach would be to always expect the unexpected because it will allow you to think more creatively when taking risks. Speak to a qualified financial advisor if needed.
Always partner with reputable P2P lending platforms with a good track record. More established P2P platforms also offer more safeguards to investors if something goes wrong.
Keep on Hedging
Seasoned investors will tell you that no matter what you do or where you live, economies are hit with periods of growth and economic downturns when you least expect it. This is why you need to hedge for times of uncertainty.
Factor in unforeseen downturns and build in some reserves to carry you through. Also keep reserves for times of opportunity. There is nothing like the unknown (like COVID-19) to breed innovative solutions. This coupled with diversification will give you a greater degree of success.