👉 Financial markets have had a turbulent 2022 to say the least. The downturn caused by the Covid-19 pandemic meant central banks all over the world had to take drastic measures in order to support their ailing economies. Central banks cut interest rates in an effort to stave off a recession, the likes of which had not been seen since the 2008 Financial Crisis. Many interest rates were reduced to zero with some even going beyond that into negative territory.
👉 This led investors to borrow more capital (at the lower interest rate cost) and pump the cash back into the economy, causing a sharp rise in stock markets. The broad-based S&P 500 Index, after dropping approximately 33% in the months following the pandemic, rose an astonishing 114% from its Covid-rendered lows to new all-time-highs at the start of 2022.
👉 However, the access to “easy money” caused a spike in inflation making everyday living costs more expensive. It was no surprise that eventually the party had to end and central banks would need to think about raising rates once again to a point where a healthy medium was found.
👉 What was a surprise was Russia’s invasion of the Ukraine and the war that has raged since the end of February. Russia’s involvement in supplying Europe with natural gas meant that as a retaliation to global sanctions being applied to President Putin, he responded by restricting the flow of this resource to the rest of Europe, driving up the price of something that is considered a necessity to European citizens.
👉 Meanwhile, China’s zero covid policy means continuing lockdowns and production bottlenecks adding more pain to the supply-chain crunch already causing chaos with companies’ production lines and hence revenues.
👉 The picture for today’s investor seems bleak, but eToro’ Investment Team has come up with a solution to protect one’s capital from downturns caused by the aforementioned events. The @PanicMode Smart Portfolio is designed to buy assets whose prices should increase during times of heightened volatility, while selling assets whose price should decrease over the same time. Selling major equity markets via their relevant ETFs while buying the S&P 500 Volatility Index are just two examples of what the portfolio is about. The portfolio also includes holdings in precious metals and bonds, giving an investor cross-asset exposure to instruments that can hedge against falling markets.
👉 Please note that while economic downturns are functions of financial markets, on the whole they tend to recover over time, meaning one’s time duration spent invested in the PanicMode Smart Portfolio needs to be considered as historically markets rise.
Your capital is at risk. Past performance is not an indication of future results.
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