Investors’ portfolio management strategies in times of economic and political change
Hunter, Gareth James (2019)
2019
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Julkaisun pysyvä osoite on
https://urn.fi/URN:NBN:fi:amk-2019060113921
https://urn.fi/URN:NBN:fi:amk-2019060113921
Tiivistelmä
The thesis has analyzed some of the contemporary economic and political challenges that investors must currently tackle and how to adjust their portfolio’s accordingly. It has also suggested a variety of strategies and alternative investment vehicles that investors may take advantage of to reduce portfolio risk and minimize losses in case there is an economic downturn in the coming future.
A comparative analysis was implemented comparing how gold, bonds, dollar-cost averaging and individual stock picking as the best strategies for tackling economic downturns. The data was gathered from existing academic and scientific sources to ensure reliability and validity.
It was found that gold serves as a hedge against stocks as they have a negative correlation and that the value of gold spikes dramatically on days where there are significant amounts of negativity. Furthermore, gold serves as a safe bet against inflation. Nonetheless, gold is largely unpredictable and should only be a small part of a portfolio. Bonds were found to be only slightly positively correlated to bonds, but during recessions, the correlation is negative. As a result, bonds either gained in value during recessions or did not decrease nearly as much as stocks. Dollar-cost averaging into the recession was found to be of considerable risk, but setting cash aside to invest while the recession is on-going is what has historically benefitted investors most. In addition, a look into how individual investors may independently pick stocks that are financially stable enough to experience a downturn and recover.
The findings indicate that investors do have options available to counteract the vastly negative effects of economic downturns. Allocating a certain amount of gold or bonds to a portfolio shows to significantly reduce losses. However, if your risk tolerance is high and you have a considerable long investing time-horizon ahead of you, allocating a smaller percentage of your portfolio to bonds and investing heavily during the market crash results in larger returns. It is also a simpler way of investing compared to individual stock picking.
A comparative analysis was implemented comparing how gold, bonds, dollar-cost averaging and individual stock picking as the best strategies for tackling economic downturns. The data was gathered from existing academic and scientific sources to ensure reliability and validity.
It was found that gold serves as a hedge against stocks as they have a negative correlation and that the value of gold spikes dramatically on days where there are significant amounts of negativity. Furthermore, gold serves as a safe bet against inflation. Nonetheless, gold is largely unpredictable and should only be a small part of a portfolio. Bonds were found to be only slightly positively correlated to bonds, but during recessions, the correlation is negative. As a result, bonds either gained in value during recessions or did not decrease nearly as much as stocks. Dollar-cost averaging into the recession was found to be of considerable risk, but setting cash aside to invest while the recession is on-going is what has historically benefitted investors most. In addition, a look into how individual investors may independently pick stocks that are financially stable enough to experience a downturn and recover.
The findings indicate that investors do have options available to counteract the vastly negative effects of economic downturns. Allocating a certain amount of gold or bonds to a portfolio shows to significantly reduce losses. However, if your risk tolerance is high and you have a considerable long investing time-horizon ahead of you, allocating a smaller percentage of your portfolio to bonds and investing heavily during the market crash results in larger returns. It is also a simpler way of investing compared to individual stock picking.