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6 Investments to Consider in a Volatile Market

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By historical benchmarks, equities markets are quite volatile right now.

A glance at the CBOE Volatility Index price chart shows a sharp spike in volatility in early 2020. That coincided with the arrival of the COVID-19 pandemic.

Volatility spiked and dipped for the remainder of 2020 and into 2021. Though each successive peak was lower than the last, the volatility baseline remained elevated in comparison to the pre-COVID “before times.” We haven’t seen such a sustained stretch of market volatility since shortly after the global financial crisis.

How can investors protect themselves in a volatile market? Can they, even?

It’s possible. But it requires an “all of the above” strategy that includes investments beyond your basic stocks and ETFs. If you want to stay ahead of the market’s moves, you must consider adding new investments to your portfolio.

1. Real Estate

Land. They aren’t making any more of it.

You’ve heard the dad joke before. But like many cliches, it’s wrapped in a layer of truth. The real estate market offers one of the clearest-cut examples of the value-producing power of scarcity.

Because they’re not making any more land, and because houses and commercial buildings only get built so fast, real estate investments inherently hold their value well.

They’re not guaranteed to beat the stock market or even appreciate in value at all, mind you. Nevertheless, a good deal on a high-quality real estate investment puts one in a very good starting position.

Give yourself a head start by adopting some of the same strategies used by seasoned real estate investors:

  • Choose from a pool of pre-vetted, off-MLS deals (investment property wholesalers like New Western are a great place to start)
  • Cut out the middleman and use a lower-cost buyer’s agent
  • Approach owners of distressed properties directly, using lien records and other resources to find them
  • Buy at tax foreclosure auctions (but understand what “buying as is” really means first)

Making your way in real estate is hard work, to be sure. If you’re willing to do that work, however, the sky’s the limit.

2. Cryptocurrency (But Not Just Any Coin)

Cryptocurrency is seen as a high-risk investment, and rightly so. The stock market’s volatility might be high since the pandemic started, but crypto’s is off the chart. When you invest in crypto, you must be prepared for the value of your investment to decline.

That doesn’t mean cryptocurrency is a bad investment across the board. On the contrary, established coins like Bitcoin and Ethereum have increased in value many times over in recent years.

“Established coins” is the key here. Investing in a “flavor of the month” coin with no track record to speak of is a sure way to get burned.

Security is important too. Some cryptocurrency exchanges have fatal security flaws that leave them vulnerable to hacking. Once your coins are in a hacker’s hands, they’re likely gone for good. Protect yourself with a “cold storage” wallet that’s not directly connected to the Internet and is therefore difficult to compromise remotely.

3. A Precious Metals ETF

Before there was cryptocurrency, there was gold. Humans have used gold and other precious metals as means of exchange for millennia.

Though most modern currencies aren’t on the gold standard (tied to the price of gold) any longer, gold still has intrinsic value. This is due to its inherent scarcity and its usefulness in practical applications like jewelry and high-tech industry.

Gold isn’t the only investment-grade precious metal around today. Platinum, rhodium, palladium, silver: Along with gold, these metals often form the basis of “broad” precious metals ETFs. Of course, you can also invest in ETFs that follow the price of one particular metal, or even buy physical gold or silver if you choose.

No matter how you play it, precious metals prices tend not to correlate too closely with the broader stock market. That’s important if diversification is a key investing goal of yours — as it should be.

4. Crowdsourced or Peer to Peer Lending

Banks don’t lend to just anyone. Fortunately for individuals and businesses who need capital now, they’re not the only lenders around anymore.

Crowdsourced and peer-to-peer lending platforms cut out the stodgy middleman and allow individuals or corporate entities to lend directly to other individuals or corporations. These platforms often deliver (though can’t promise) returns that match or exceed the broader stock market. It goes without saying that with interest rates so low, investing in a basket of peer-to-peer loans offers much better returns than a savings account or bond fund.

5. A Commodities ETF (Or Several)

Precious metals are a type of commodity. If you’ve already got that part of your portfolio covered, why double down on another?

Well, because commodities are incredibly diverse. They encompass agricultural products like pork bellies and wheat, forestry products (various types of lumber), energy products like various types of oil and gas, bulk minerals like iron, and processed materials like gasoline and steel.

Moreover, while individual commodities are volatile, they don’t all move in lockstep. That means your portfolio can benefit from a broad mix of individual commodities that approximates the wider space. You can achieve this with a handful of diversified commodity ETFs or an even greater number of narrower ones.

6. A Fixed Income ETF

“Fixed income” sounds boring, like a compromise that satisfies no one.

That’s kind of the point. Investment-grade fixed income instruments like certificates of deposit and government bonds are among the lowest-risk investments around. In a portfolio that’s mostly made up of riskier components like stocks, cryptocurrencies, and precious metals, they provide badly needed stability.

Don’t go overboard with fixed income. Depending on your age, keeping this component at 10% or 20% of your total portfolio is probably sufficient. But don’t forget about it either.

Diversify Your Investment Portfolio, Expand Your Horizons

In a volatile market, diversifying your portfolio is a time-tested strategy for reducing risk (and heartburn).

Diversification is not a guarantee that your portfolio will never lose value, however. Nor is it a quick path to riches. It’s just one of many tools you can use to protect yourself from the unknown. Use it wisely.

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