We live in trying times. Between work, social life, finances, being updated with global news, and figuring out adulthood, it can get overwhelming sometimes.
Understanding what’s happening in the world, the forces at play, and how this affects your finances can help empower you in navigating these uncertainties.
Buckle up for economic volatility
The economy is like a rollercoaster. It’s a smooth-sailing ride when things are going great, but other times it’s a wild ride with unexpected twists and turns. Interest rates, inflation, and financial situations in other countries can all cause ups and downs in stock markets, but thankfully you can prepare for the bumps.
In an economy that is doing well, interest rates are typically lower which makes borrowing money cheaper, leading to economic expansion and potentially higher stock prices. A long period of rising driver stock values is called a bull market, and many bullish investors raise their exposure to equities and fast-growing assets.
Three tips to navigate economic volatility:
- Assess how much risk you are willing to take and understand common market sentiment drivers so you can adopt investing strategies in line with your financial goals.
- By tuning in to global news, you can look out for signs – a booming sector or sluggish economy could signal impact on your investments.
- When inflation starts to increase, interest rates may start to go up. Goods and services become more expensive, so businesses and consumers tend to spend more carefully. People are more conservative with spending and investors are less willing to take risks. To combat this, consider investments that can potentially grow faster than inflation, like precious metals such as gold or real estate.
The impact of geopolitical shocks
The shifting political and geopolitical landscape can significantly affect your investments.
Political shifts can influence economic policies, tax regulations, and legislation. Changes in government can lead to new policies that can impact specific industries, for example, new laws affecting pharmaceutical companies in light of the COVID-19 pandemic.
Geopolitical tensions such as wars and territorial conflicts can disrupt economies greatly, for example, by affecting supply chains and driving prices of raw materials like oil, wheat or nickel, to name a few.
Collectively, these developments could affect financial markets. For example, impacted businesses may face higher cost pressures or risk factors, affecting their profitability and market value.
Two tips to overcome political and geopolitical uncertainties:
- These are all beyond our control, so diversifying your investments across different regions and industries could reduce your exposure.
- Secondly, by researching the political climate before making investments, you can understand what’s happening and the political dynamics affecting market volatility.
Technology and environmental advances are changing the game
As the world constantly evolves, so are the things we care about and the things we invest in. A report done by BCG showed that the pandemic heightened people’s awareness of how human activity has been threatening the planet and climate. More people are committing to take action by purchasing locally produced goods, turning away from fast fashion brands, or reducing their energy consumption.
Companies that focus on sustainability and clean, renewable energy are increasingly becoming attractive investments, so be on the lookout for organisations that are working towards a greener future.
It is also undeniable that artificial intelligence, blockchain technology, and automation are shaking things up. We’re moving into the Fifth Industrial Revolution led by the unprecedented progress in AI. Nvidia, the computer-chip manufacturer, has risen to compete with Apple and Microsoft for the title of top valued-company in the world.
Shortly before that, crypto dominated the conversations with Bitcoin prices soaring 1300% in 2017 then dropping to -73% the year after and continues to fluctuate until today. Non-fungible tokens (NFTs) also rose in popularity with investors choosing to hold digital artworks stored on blockchain.
One tip to help cope with the fast-changing world:
- Understanding these trends and reconciling it with your risk appetite can help you identify innovative companies poised for growth. Remember to do your due diligence and not simply hop on the bandwagon when certain investments are the hottest things on the internet.
It’s an unpredictable world
The world may seem unpredictable, but that doesn’t mean your investments have to be. As more challenges arise, people have and will continue to find ways to combat or address them, creating exciting investment opportunities.
While the stock market has its highs and lows, history has shown that it has trended upwards over time. By focusing on a diversified, long-term investment strategy, you can ride out short-term bumps while investing consistently.
By staying informed and making thoughtful choices, you can continue to build a secure financial future. So, buckle up, get ready for the ride, and make your money work for you!
This content is part of the Temasek – Financial Times Challenge, a financial literacy education series in Singapore for youths.
