Economic instability is on many Americans’ minds. According to a recent survey, nearly 40% of American households admit they’re having a difficult time making ends meet in 2024.
If you’re concerned about the economy, searching for strategies to safeguard assets during economic downturns can help you sleep better at night. If you take the right approach to managing your assets, you might even put yourself in a much better financial position than you’re in now by the time the economy turns around.
So, what are the key strategies to safeguard assets you should employ during economic downturns? Discover more about them below.
Diversifying Your Investments
In recent years, surveys have suggested many Americans don’t take investment diversification seriously enough. One survey in particular revealed that about 25% of people don’t know whether or not their investments are diversified enough.
Not diversifying your investments is one of the biggest investing mistakes you can make during both good and bad economic times.
Why Diversification Matters
If your financial portfolio consists of nothing but stocks, what will happen if the stock market takes a huge hit like it did in August 2024? Chances are, your portfolio will also take a hit. Even a slight economic downturn could put your portfolio in the tank and force you to take drastic measures — like dumping stocks at a big financial loss — to avoid losing too much money.
Diversification can prevent this. When stocks make up just a portion of your portfolio, you won’t have to worry about the stock market tanking and doing serious damage. The other assets in your portfolio can keep your portfolio afloat while you ride out the dip in the stock market.
Taking this approach to diversify your assets might even enable you to free up money to “buy the dip” and snatch up stocks with prices that have dropped dramatically.
Types of Diversified Assets
Many people automatically associate investing with stocks and bonds. But these are just two types of diversified assets that should be part of your long-term investment strategy.
Other options include:
- Cash
- Cryptocurrency
- Precious metals
- Real estate
- Intellectual property
Tips for Building a Balanced Portfolio
Not sure how to build a balanced portfolio designed to withstand economic downturns? These tips should help:
- Come up with financial goals and definitive timelines for them at the beginning of the financial planning process.
- Determine your risk tolerance and reevaluate it as you go through different life events.
- Figure out which types of assets appeal to you by researching each of your options.
- Spread your money around by investing in various types of diversified assets.
Strengthening Your Financial Foundation
If you don’t have a solid financial foundation, even the strongest strategies to safeguard assets during economic downturns might not work effectively. By establishing an emergency fund, figuring out a solution for debt, and relying on a budget, you can strengthen your financial foundation.
The Importance of an Emergency Fund
Nearly one-fourth of American adults don’t have any emergency savings set aside for rainy days. This explains why almost half of U.S. adults admit they couldn’t cover an unexpected $1,000 expense.
If you don’t have an emergency fund yet, start putting one together soon. Providing yourself with access to emergency funds can provide peace of mind and prevent you from taking on debt all the time.
Managing and Reducing Debt
Over 60% of Americans are currently in credit card debt. They have about $6,000 in credit card debt on average.
If you have too much credit card debt and other types of debt, focus on resolving it. Come up with a plan for paying down your debt so you aren’t forced to devote so much income to it anymore.
Effective Budgeting and Controlling Expenses
A 2023 survey discovered that over 50% of Americans say learning how to create a budget and monitor expenses is the greatest financial lesson they were ever taught.
If you don’t have a budget, utilizing one can make your financial foundation stronger. You might be surprised to see how much money you can save each month simply by paying closer attention to your spending.
Protecting Against Inflation and Deflation
Inflation in the U.S. has fallen in recent months, but it’s still a big concern for many people searching for strategies to safeguard assets during economic downturns. Deflation is also something Americans should plan to protect themselves from. Take a look at how you can do it.
Investing in Inflation-Protected Securities
Many of the diversified assets we referred to earlier aren’t protected against inflation. There are, however, inflation-protected securities that should play a part in your financial portfolio.
Treasury inflation-protected securities, better known as TIPS, have principals that increase and decrease based on inflation. Principals are determined by changes in the Consumer Price Index, or CPI.
TIPS are available through:
- Banks
- Securities brokers and dealers
- The U.S. Treasury
Strategies for Deflation Protection
Deflation occurs when the U.S. inflation rate drops below 0%. This makes the prices of consumer goods lower, but it can also wreak havoc on the economy.
Several strategies for protecting yourself from deflation include:
- Beefing up your emergency fund and cutting expenses
- Investing in U.S. Savings Bonds
- Resisting the urge to panic when the prices of the stocks in your investment portfolio fall
Exploring Commodities and Precious Metals
Hedging against inflation is sometimes as simple as investing in precious metals and other commodities. Gold is usually the go-to precious metal for investors, but other options exist, too, including:
- Silver
- Platinum
- Iridium
- Palladium
- Rhodium
Managing Risk With Insurance
When was the last time you skimmed through the paperwork for your auto insurance policy to make sure it provides enough coverage? The average economic cost of a single car accident involving injuries is anywhere from about $25,000 to over $150,000.
If you don’t have the right auto insurance policy, an accident could put you in a precarious financial position. Manage risk by investing in the right insurance policies.
Key Types of Insurance To Consider
Auto insurance is just one type of insurance you should consider to manage risk. Other examples of insurance that can reduce risk are:
- Homeowners insurance
- Health insurance
- Disability insurance
- Life insurance
- Business insurance
Assessing Coverage Needs
Don’t just sign up for insurance policies and assume they’ll provide the protection you need. Instead, analyze different insurance policies and choose the ones that extend the right coverage without increasing your expenses too much. Investing in the right insurance coverage is one of the simplest strategies to safeguard assets during economic downturns.
Creating a Risk Management Plan
It’s virtually impossible to eliminate all risks from your life. But you can manage it better by coming up with a risk management plan.
Create one by:
- Generating a list of financial risks that threaten your livelihood, like unexpected medical and property expenses, market volatility, and income loss
- Evaluating how risky these items are
- Searching for ways to minimize these risks
- Avoiding unnecessary risks, especially during economic downturns
- Reviewing your plan routinely and making improvements
Smart Asset Allocation
Deciding where to allocate your assets will have a huge impact on how they fare during tough economic times. Don’t be afraid to move assets around so they’re allocated in the right places when financial disasters strike.
Adjusting Your Strategy Based on Market Conditions
Successful investors are always monitoring the stock market, the real estate market, and other markets and adjusting their investment strategies accordingly. Many put the “buy low, sell high” investment strategy to good use.
Your investment strategy should change based on how the investing markets change to earn respectable returns on investments.
Regularly Reviewing and Rebalancing Your Investments
Outside of monitoring market conditions, you should also monitor your financial portfolio by reviewing it. Rebalancing your portfolio will need to happen every now and then to keep your investments in good order.
Balancing Long-Term and Short-Term Strategies
If the investment strategies you use are too nearsighted or too farsighted, your financial portfolio might suffer. Rather than only using long-term strategies or short-term strategies, employ a combination of both. This can further balance your investments and give you peace of mind.
The Advantages of Long-Term Investing
Creating a long-term investing strategy can provide a long list of benefits. Here are a few of the biggest ones:
- Offers you improved returns over time
- Allows you to ride out investing highs and lows
- This leads to you making fewer emotionally charged investment decisions
Short-Term Opportunities During Economic Downturns
During economic downturns, you might find short-term opportunities that are too potentially lucrative to pass up. If, for instance, stock prices drop rapidly, you can consider buying the dip and securing solid returns on your investments in the not-too-distant future.
Evaluating Risks and Rewards for Different Investment Horizons
A balanced mix of short-term and long-term investment strategies should produce more financial rewards with less risk. Still, you should be mindful of the risks and rewards that will come along with different investment opportunities. Weigh risks and rewards against one another to see how they stack up.
Role of Trusts in Safeguarding Assets
While each of the strategies to safeguard assets during economic downturns mentioned here can provide financial protection to some degree, few offer the asset protection that a trust can. Trusts are typically associated with estate planning, but they can also offer many benefits to those simply trying to protect assets.
How a Trust Can Protect You
A trust can protect you and your assets in many ways. For example, a trust can:
- Shield your assets from creditors’ claims
- Keep your assets safe during lawsuits
- Reduce your liability when it comes to business debts
Choosing Domestic vs. Offshore Trust
Domestic trusts are those set up in the U.S., and they’re a much better option than not using a trust at all. They can provide some protection to your assets while also offering simpler tax reporting requirements.
However, offshore trusts should be your preferred option since they’ll extend more asset protection overall. A Cook Islands Trust or a Nevis Trust are two great examples of offshore trusts that can benefit you and your assets. These trusts are outside U.S. court judgments and difficult for creditors to access. They’re confidential and offer significant tax benefits.
Importance of an Attorney When Creating a Trust
Creating a trust is a fantastic idea for those who need asset protection, but it’s also a complicated process that can cause issues if you skip any important steps. Hiring an attorney who knows the ins and outs of establishing trusts can make the process easier and ensure you don’t make any critical mistakes.
Let Us Help You Take Steps To Keep Your Assets Safe
Now that you know about the effective strategies to safeguard assets during economic downturns, start providing your assets with the protection they need. Blake Harris Law is here to help you create a trust to keep your assets safe. Contact us for more information.
