Is it time to switch from risk assets to other trading instruments?

If we look at the global economic picture, one can say that it is probably the most difficult periods in our modern time to make investment decisions. Let’s see briefly how the situation stands.

The global economy in a nutshell

In the United States, we had probably one of the most impressive economic recoveries, starting in 2009 and recently surpassing the longest economic expansion in the 90’s. The stock market is now very close to record highs, but the question arising is how long it could possibly grow. With rising interest and shrinking risk premiums, we already see the major stock market indexes reacting in a negative way.

In Europe, uncertain Brexit negotiations, rising populism in Italy, Greece, and even Germany, slow economic recovery since the crisis of 2008, are making investors very cautious when it comes to investing.

If we move to Asia, Japan is still struggling with deflation and it still had the biggest government debt to GDP ratio in the world, currently at 253%. China, the second largest economy in the world, is also struggling, hit by the rising trade tensions with the United States and by the high debt which had been accumulated during the last few years as the government wanted to maintain a high level of GDP growth.

Given this high uncertainty, the question remains whether we should shift to other investing instruments.There is not a single correct answer to that question. It is true that the markets could become choppier as we head towards the end of 2018 and possibly into 2019, but it all depends on your risk tolerance.

If you have no problem making investment decisions in volatile environments, you could still invest in riskier assets and adopt a short-term approach. As a retail investor, you have a lot of tools available to profit from rising and falling markets. CFD trading and other derivatives can enable you to ride the wave in each direction.

On the other hand, if you are more risk averse and you can’t take decisions under heavy pressure, switching to other instruments (bonds, bank deposits, etc.) could be a better alternative. However, these assets give you an edge when inflation is not rising faster, so it will be wiser to have a balanced portfolio with riskier and low-risk assets combined.

 

Risk Warning and Disclaimer

Trading the market carries risk and may not be suitable for all investors. This is not an

investment advice and it is just used for information purposes.