In the rapidly-growing landscape of financial markets, investors often seek strategies that can protect their wealth and provide resilience during challenging times.
One of the most crucial approaches to do this is through portfolio diversification – a practice that involves spreading investments across different asset classes and sectors. By diversifying, investors can effectively mitigate risks associated with downturns, inflation, and recession.
On May 23, prominent trader and market analyst Michaël van de Poppe tweeted a list of assets that every investor’s portfolio should include in order to prepare for unforeseen market headwinds.
These include real estate and stocks, commodities such as gold, silver, and uranium, cash, and cryptocurrencies like Bitcoin (BTC) and Ethereum (ETH). The market expert also emphasized the importance of investors regularly rebalancing their portfolios on a consistent basis, ensuring preparedness for any market situation.
In turn, Finbold conducted a comprehensive analysis of the five aforementioned assets, examining their unique advantages and benefits for investors.
Real estate and stocks
Real estate assets, such as REITS, and stocks are considered essential assets in an investor’s portfolio due to their potential for long-term growth and wealth accumulation.
To be more specific, the real estate market proved to be a reliable long-term investment during economic cycles, offering benefits of rental income, and tax advantages. In addition, it is also a tangible asset that can act as a hedge against inflation.
Meanwhile, stocks provide a way for investors to gain ownership in companies and seize the opportunity to participate in their growth and profitability. The stock market is arguably the most popular asset class because it is widely considered the best investment in terms of historical rate of return.
Invest in commodities
Commodities, especially gold, are viewed as the most important safe-haven asset investors should own in an inflationary environment such as the one we are currently witnessing.
The reason for this is that commodities often have an inverse relationship with inflation, meaning that when the value of fiat currencies decreases, commodities tend to retain their value or even appreciate, serving as a hedge against rising prices.
Earlier this month, gold surged to near its all-time high of $2,052 per ounce, fueled in part by the Federal Reserve’s most recent interest rate hike. Meanwhile, uranium also rose more than 9.6% since the start of the year.
Cash and cash equivalents
Cash and cash equivalents are primarily held by investors to provide liquidity – a way to quickly convert assets into cash without significant loss of value.
In addition, it offers investors significant flexibility to capitalize on unexpected investment opportunities that emerge. For instance, during market downturns, when asset prices are discounted, having available cash allows investors to buy assets at appealing prices.
Bitcoin and Ethereum
Finally, yet importantly, van de Poppe mentions BTC and ETH as assets every investor should include in their portfolio.
First of all, the two biggest cryptocurrencies have witnessed substantial price surges in the past, leading to significant returns for early investors. Apart from that, Bitcoin and Ether are increasingly considered assets that can help diversify portfolios due to their low correlation with traditional asset classes like stocks and bonds.
After a tumultuous 2022, Bitcoin and Ether saw robust returns since the start of 2023, each rising more than 64% and 53.8%, respectively.
Perhaps most importantly, cryptocurrencies allow investors to participate in the growing digital economy and the potential disruption of traditional financial systems.