As the world moves into 2021, investments are expected to become more complex for investors. The premise of investing has always remained the same; buying low and selling high (with hopes that your business is scalable) but now there are considerations that make this strategy harder to pull off.
Initiatives like Brexit, the trade war between the U.S. and China, and pro-cyclical fiscal policies are just some of the factors that will infiltrate investment portfolios in 2021.
To answer these challenges, it’s important to understand what procyclical means. Pro-cyclical means that when something becomes more expensive or moves faster, everything else follows suit—in this case the pro-cyclical idea relates to interest rates which are expected to go up in 2021. This is why investors are watching for signs of inflation with vested interest as companies who have high levels tend to be risky investments (more on this below). When inflation goes down it’s a great time for people looking into investments because prices become cheaper but procyclical interest rates mean that inflation is also a possibility.
Pro rata is another consideration that is pro-cyclical because more interest rates tend to mean that pro rata is paid out in many companies. This means there are higher dividends being paid to investors which also makes pro-cyclical pro rata few and far between.
Today’s market is fast-paced with changes happening in technology, automation, consumer demands, urbanization trends and even human behavior. This means that depending on where your money goes or how it is invested you would have a different experience as an investor.
Here are some things to consider:
Segmenting Your Investments
The definition of “segmentation” is a marketing technique used by businesses which divides their customers into groups based on certain characteristics and then focuses on marketing to each group individually. This allows them to tailor their offer and maximize their profits.
When it comes to your investments, “segmentation” is not just limited to the types of shares you buy but also the times at which you invest. For example, if you are planning on investing in a large multinational company such as Nestle SA (which owns over 2,000 brands), you would need to consider how much risk you can afford because there might be fluctuations in your investment due to international trade wars or other economic factors that we cannot always control or predict. You may want to look into buying stocks that have higher chances of appreciation rather than short term gains like cryptocurrencies. However, if you are looking for short term gains you could invest in cryptocurrencies and trade them during peaks and lows because they fluctuate less than other financial instruments.
Investing in the Right Place and the Right Time
Ever since the 2008 Financial Crisis, there has been a constant need to protect against risk which will define how we invest as an investor. There is also an ever increasing demand that requires us to think about where our investments will go towards; such as investing into robotics or into sustainable energy sources such as wind turbines. This means that “where” you invest is just as important as “when” you do it. You wouldn’t want to spend your money on something that may not be around in 2021 because technology moves at a faster pace than we do.
As an example, if you want to invest in a company that provides legal services, choosing a good location for your investment is crucial. If the country doesn’t have laws against cryptocurrencies, then investing in a crypto exchange might be a worthwhile plan because they would most likely flourish there. An investor must constantly look at where their investments are going and see how it will affect them as time goes by.
In case of emergencies or any issues with your investments, it is important that you contact the right people to fix the problem as soon as possible before things get worse with interest rates and other factors affecting price fluctuations. This means that you should always have an exit strategy when your investment reaches its cap and it’s time to move on. While looking for people who can provide you with cap table services, check their experience and see what type of cap tables they have executed in the past. If possible, speak to people who have used them before because testimonials are always helpful when trying to make this difficult decision.
Conclusively, as an investor you should be well versed in your investment decisions so that you can diversify across various opportunities available. You might not know where or how your investments will go but if you invest smartly then you will most likely succeed in 2021!