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Investing strategy revealed: How to stave off threats to your investments

by , 11 August 2014

Despite the stock market having a great year so far, it doesn't mean that it couldn't all change. There are a wide array of factors that can impact your portfolio.

Factors include interest rate hikes, inflation and recession.

It's crucial that you take steps to protect your investments so they don't bear the brunt.

So what can you do to protect your portfolio? Read on to find out…

Investment threat #1: Interest rate hikes

When a central bank, like the South African Reserve Bank, starts to hike interest rates it can have a big effect on a country’s economy.

Those who have borrowed a lot from the bank feel additional strain as their repayments rise. Even the cost of your bond repayments will rise. And interest rate hikes tend to slow the economy down.

So how can you protect your investments? You need to invest in companies that have strong balance sheets, Bengt Saelensminde in The Right Side explains. They’re in a better position to weather a storm and should give you good returns in the process.

Investment threat #2: High inflation

This is the situation South African finds itself in now.

You can diversify your portfolio to fight back against inflation. There are certain stocks that tend to perform well as they can raise their prices with rising inflation.

These stocks include vice stocks, like cigarette companies and companies selling alcohol. Also pharmaceutical companies are consistent performers.

Investment threat #3: The return of a recession

South Africa’s economy is struggling to gain momentum as strikes have crippled the country this year.

If the economy contracts again, we could be back in recession territory.

To protect your investments need to ensure that you have a diversified portfolio.

You can also invest in a fund like Catco reinsurance investment funds. These perform well if catastrophic events happen.

A fund like this performs differently to the financial markets, so can make the perfect diversification play.

With stock markets still continuing their general upward trend, a well-diversified portfolio should help your portfolio survive against a number of possible threats.

So there you have it, how to stave off threats to your investments.

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Investing strategy revealed: How to stave off threats to your investments
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