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History always describe a period of conflicts and war as a period of instability in financial world. Previously when war such as World War 1 or World War 2 occurred, there were no multi asset investment strategy among investors resulting in loss of billions of dollars when massive selloff occurred. Such financial losses are common as during any war, there are emotion of loss and fear attached with investors. Moreover, we witness such emotions imminently influence fluctuation in value of currencies, inflation hike as well as volatility in stock market and commodities market.
At such watershed moment, investors always seek safehaven or secured return investment fields that are able to absorb the volatility of market as well as provide protection from rising inflation rate and preserve value of their capital to a large extent.
In this article, we will discuss a multi asset investment strategy consisting of 3 best known assets that have been delivering good results during instability period for many centuries. These assets have been favourite for hedge funds, investors and large institutions whenever they plan out their multi asset investment strategy as these assets provide economic stability during war conditions.
Gold as part of Multi Asset Investment Strategy
Gold has long been considered the most reliable financial asset during times of war and economic uncertainty. For centuries, investors have turned to gold when markets become unstable.
Gold tends to rise during conflicts because investors lose confidence in paper currencies and financial markets. Governments often increase spending during wars, which can lead to higher inflation and currency depreciation. Gold acts as a hedge against these risks.
For example, gold prices surged during the Vietnam War and again during global tensions after the September 11 attacks.
Why Gold Performs Well During War
Gold has many properties that makes it one of the most desired assets in most investor’s portfolio whenever they think of multi asset investment strategy for their capital preservation.
- High level protection against inflation through out the world.
- It is considered as the main benchmark against every currency and therefore it remains constant while currencies keep depreciating.
- It is highly liquid in nature and globally accepted by every country.
Ways to Invest in Gold
Gold investment is not a monotonous process of only buying physical gold but it can also include methods of making investment in mutual funds or ETFs which are less riskier when compared to gold bars and coins. Many investors are attracted to ETFs and Mutual funds related to gold as they are feasible for anyone who has small budget while purchasing gold bar and coin may require a good amount of money.
Anyone interested in creating a multi asset investment strategy should also need to make proper planning about the percentage of capital that would be invested in gold and then only make transactions. ETFs and Mutual fund in gold is also more liquid and transparent in trading when compared to physical gold.
Many investors are also attracted toward Sovereign Gold Bonds (SGBs) which are issued by Government of India to attract common citizens to invest in these gold assets where an investor is able to gain interest income on top of increment in gold price. Moreover, people can also sell these bonds without any worry about taxes. Currently government has modified it to tax anyone who buys or sells these bonds from third party.
Energy and commodities as part of Multi Asset Investment Strategy
Energy and commodities are another asset class that often performs strongly during war. Conflicts can disrupt supply chains, restrict production, and create shortages of essential resources.
Oil prices, in particular, tend to rise during geopolitical tensions. Military operations require enormous amounts of fuel, and conflicts in oil-producing regions can significantly impact global supply.
During the Gulf War, crude oil prices experienced sharp increases due to fears of supply disruption in the Middle East.
Commodities that get benefitted through war
Any commodity that has connection with demand during war and has perishable nature witness escalation in its prices.
- Industrial metals that are necessity for manufacturing industries such as copper have appreciation in their prices
- Crude Oil as well as related products such as Petrol, diesel, LNG as well as LPG witness price rise especially when geopolitical crisis is centred around West Asia.
- Many agricultural products such as fertilizers and agricultural chemicals have price increase.
During a geopolitical event such as war, the consumption of fuel increases enormously due to military operations which eventually helps in increase in oil prices.
How to include commodities in multi asset investment strategy?
Interested investors who want to invest in commodities can make their investment through various methods including:
- Commodities Mutual Funds
- Commodities ETFs
- Future Contract related to commodities
- Purchasing energy based stocks
Commodities are always treated as a hedging option against inflation amid supply shortages that occur in war like scenario.
Precious Metals as part of Multi Asset Investment Strategy
Many precious metals are also considered as investment options when a war-like conflict occurs. During such event, many precious metals such as Silver, Platinum, Copper and many more becomes instrument of investment and alternative to Gold as they are less costlier when compared to Gold.
Silver is used as industrial raw material as well as hedging metal. Similarly other metals also have hedging options as during war and conflicts, there is significant disruption in flow of metals resulting in increase in prices of metal.
Due to multiple usage, there is chances of significant increase in price of Silver as well as associate metals such as copper and platinum.
There are many advantages of having silver as part of multi asset investment strategy such as given below:
- when compared to gold, entry price is lower for silver as there is lower demand of silver in first place.
- during crisis, silver witness a very large demand from investors who consider silver as a stable option when compared to other metals.
- due to industrial usage there is always a long term demand and also constant demand present for silver.
- Silver price always appreciates during crisis time and therefore suits well for any investor looking for hedging option.
Means to invest in Silver
Similar to gold there are various means to make investment in silver including ETFs and mutual funds.
Investors can look for companies that deals with mining silver such as Hindustan Zinc, as these companies are expected to gain profit from increase in silver prices. Investors can also make purchase of silver bars and coins as they offer a high degree of liquidity. Although keeping silver bars and coins can be risky as they can get stolen resulting in good amount of loss.
One of the safer way to make investment in silver is through using Silver ETFs, that gives a huge amount of liquidity as well as lower risk of theft. In addition, there is very low entry barrier when investing in silver ETF as investors can also start investment with Rs. 100.
However, it is a negative issue with silver that it attract more volatility as prices fluctuate more significantly when compared to gold prices. Silver attracts more volume transactions resulting in significant changes in prices in a very short time.
Must have investment choices during war
During a conflict, shares related to some sectors such as defence and precious metals display appreciation, still an investor needs to be cautious during such scenario. Most times, there is a sense of unpredictable and shares can display unpredictable moves which can result in losses. Therefore it is in interest of an investor to make diversified investment where capital is invested in various assets and therefore choose multi asset investment strategy.
Investor should make investment in gold and precious metals along side keep a good amount in cash for liquidity. Also, investor should make investment in commodities that are most bound to appreciate during a war like scenario.
Investment planning is an important part of investor’s strategy to build a long term investment portfolio whereas short term investment is a more unpredictable move. Investors focusing on long term investment plans are more likely to make profits when compared to short term portfolio investment as they are based on news that are constantly changing and influencing the price movement.
Conclusion
War leads to economic uncertainty, inflationary pressures, and financial market volatility. Under such economic conditions, investors prefer to invest in assets that can provide better returns while protecting and growing their wealth in spite of the economic volatility.
Out of the various investment opportunities available in the market, gold, commodities, and silver have been recognized as the most reliable investment opportunities during such economic conditions.
It is very difficult to find risk-free investment opportunities in the market. However, investing in gold, commodities, and silver can help you minimize your risk and ensure the growth of your wealth during such economic conditions.
It is always a better strategy for shrewd investors to look for opportunities that can help them maximize their returns while protecting and growing their wealth during uncertain global economic conditions.