Market volatility has recently worsened, and is exacerbated by the decision of the Chinese officials to devalue the Yuan. Yep, the Chinese debacle has created a contagion. Of course, the characteristic of human nature is to fear further losses when the market undergoes an upset, but according to New York-based economist, Christian Broda, investors should not run and sell, only to undermine the long-term performance of their portfolio.
Christian Broda, a former professor of economics at the University of Chicago says this is where investors perform a reality check, but you must remain focused on the goals – diversifying portfolios offers a more balanced and defensive strategy, which offers the market the time it needs to recover, and gives you greater potential for dividend growth.
Stock market corrections are a normal part of the cycle. For example, the decline in oil prices and other commodities is a positive factor for most countries, since it can have a favorable effect on 70% of gross domestic product (GDP).
The decrease in gas prices will lead to higher consumption (each drop of a percent of the price of a gallon of gasoline in the United States can add $ 1.5 billion to US disposable income of Americans). Moreover, the decline in commodity prices encumbers inflation, which has always been associated with multiple expansion and very robust stock market returns. In other words, we’ll continue to reap the benefits in our current roller coaster environment.
Is this slowdown in market growth really a threat? While certainly not harmless, it’s not catastrophic and the market will quickly recover. However economist Christian Broda encourages diversification. Investors who ignore their portfolio, always get that system-shock when the market goes through some volatility and this propels them into attention. The best advice is to diversify.
There is growing anxiety, but Broda says with eyes wide open, take a look at some investment strategies. One approach is to focus on the shifts in the economy and earnings.
Investing in companies with sustainable revenue and earnings growth is a good theme. One place to start your search is multinational corporations, particularly those with strong positions in stable economies.
Opportunity is out there, especially in global sectors like technology, energy and infrastructure. The world is seeing rapid overseas growth, and you may be tempted to ignore and wait it out, but that strategy doesn’t necessarily work for everyone and you could lose a good deal of your nest egg. Protecting your investments always translates into diversification.