Most of us are painfully aware of what a bear market can do to your investment portfolio in the short term, but a decline of about 20% in stock prices, could pale into insignificance, if a doomsday scenario actually happened.
The sheer blind panic when financial markets go into meltdown, brings out some of the worst human characteristics and the temptation to hit the panic button is too great to resist. If you have all of your money tied up in the stock market, or closely linked to it, then it could conceivably create the equivalent of a financial armageddon, which leaves you knowing what it felt like to go through the great depression that followed the infamous market crash in 1929.
Here is a look at some alternative investment strategies which might help you to achieve financial survival and keep your head while other around you are failing to do so.
Profit from a decline
If you are already familiar with various alternative investment opportunities, you will understand the mechanics of an exchange-traded fund (ETF).
An inverse ETF will open up the possibility of being able to profit from a decline in all of the major indexes or benchmarks around the globe, which would be the case in a doomsday scenario.
What happens with an inverse ETF is that when the major indexes are falling, your fund should be rising. This allows you the chance to generate a profit while the rest of the market nurses some noticeable losses.
The basics of how an inverse ETF works, is that the fund will generally buy derivative contracts such as swaps for example. These are designed to gain in value when the market is on a downward spiral and will lose value when the market rises.
This is a risky strategy of course but as part of a financial survival plan, an inverse ETF could be used as a way to protect your portfolio against a falling market. You could also simply use an inverse ETF to make an outright bet against the market at a timing of your choice.
An inverse ETF is a short term hedging strategy in reality, which may work for you if you are keen to hold your nerve and don’t want to sell some of the stocks you hold, but want to try and manage your risk exposure level.
Commodities need to be considered
If you are dealing with a doomsday scenario, your plan after initial survival, is what is going to be in demand, regardless of economic conditions.
Food, fuel and other vital commodities are always going to be in demand, and some will be in critical demand or short supply as everyone tries to respond and recover from events that have led to the turmoil.
Commodities markets are notoriously volatile and natural disasters as well as significant world events have the capacity to impact prices dramatically.
You don’t need much imagination to understand what a crop shortage could do to prices and a few gas and oil pipelines going down, will likely trigger a big spike in oil prices. One of the potentially safest ways for you to prosper from commodities in a doomsday situation, would be to buy into an ETF.
Choose an ETF that purchase several different commodities, so that you can hedge your bets and hopefully profit from a variety of different scenarios unfolding.
Invest in infrastructure
There could well be a case for rebuilding and creating the sort of infrastructure projects that will need to be financed and completed, even in times of trouble, which is not the case with some other types of building and construction projects.
There is no question that when you look at infrastructure as a real estate category, it definitely carries some unique and distinct risks and in relation to other asset classes, but in times of trouble, there is a potentially persuasive argument that comes down in favor of investing in infrastructure.
The typical profile of an infrastructure investment, is slow and steady wins the race. You can normally expect steady cash flows from income generated from infrastructure investments in long-term projects where competition doesn’t always impact prices and your income will probably rise in line with inflation.
Infrastructure assets are a long-term play and could represent a solid alternative investment option as part of your financial plans in a doomsday environment.
If you get another situation that is anything like 2008 or worse, there could be a case to be made for investing in what are often referred to as hard-money loans.
Financing private mortgages is an investment opportunity referred to as hard-money loans, because these specific type of mortgage products are designed to meet the needs of private borrowers and investors, by bypassing banks and giving you the comfort of lending money with the security of a solid asset as a guarantee against a default.
The obvious risk that you might consider in a financial meltdown situation, is that the value of your asset may fall in line with a market depression and leave you vulnerable to a shortfall. Private mortgages never exceed 70% and are often for a lesser percentage of loan to valuation than that, so you have a certain amount of cushion should you need to foreclose and get your cash back, in the event of a borrower’s default.
The fundamental point to consider about private mortgages is that you will be providing the funds, but it will be through a loan broker who serves as a matchmaker. They will check the creditworthiness of the applicant and any blemishes or if their credit score is too low, they won’t be put forward as a suitable borrower.
The average foreclosure rate on private mortgages is just 3% and you can normally earn somewhere between 10% and 12% return on your money on an annual basis, so you could argue that there is a fair risk & reward balance with this alternative investment vehicle.
If you are looking to develop a strategy financial survival in a doomsday scenario, these alternative investments may well help you to maintain and grow your wealth, in difficult circumstances.
Please note that we are not offering investment advice. Our aim is to simply highlight some strategies to consider, so that you can make your own financial decisions.