Financiers know that diversification can optimize the risk/return ratio of a stock market portfolio. This is why some automated trading solutions that are unrelated to stocks are drawing an increasing amount of interest.
When most financial assets are boosted by the accommodating monetary policies of the major central banks, it can seem increasingly difficult to build an equity portfolio that is sufficiently diversified to withstand the next market jolt. To increase the diversification of their financial assets without reducing their returns, investors are therefore turning to new alternative forms of investment, such as automated trading solutions.
To preserve their wealth in times of crisis, investors generally place their money in "safe haven" assets such as government bonds. However, with negative yields on the debt securities of the best borrowers, this is no longer as attractive an option as it used to be. Investors are therefore exploring new investments that are unrelated to stock prices.
Since 2008 and the advent of Bitcoin, there has been a real craze around crypto-assets. However, crypto is paved with pitfalls for beginners and is still to this day reserved for a few insiders. Rather than venturing into new and unfamiliar asset classes, investors looking to diversify their wealth are more interested in changing the type of their investments than the asset classes.
In a traditional investment using a stock savings plan or a securities account, investors buy company shares, hold them, and eventually sell them after a certain period of time. In such a scenario, although dividends may generate some income, the bulk of the performance is usually due to changes in the share price. In other words, in order to make money, the share price must rise or at least remain stable.
In times of crisis, unless you have sold your shares at the right time, it is difficult for this kind of investor to make it out unscathed. However, there is another way to invest in the stock market. By opening an online trading account, you can bet on the rise and fall of stocks and stock indexes (a practice known as "short selling"). Whether the market rises or falls is irrelevant, as it is possible to make gains in both situations. This kind of investment is totally uncorrelated with stock market performance.
If you are concerned that you may be too exposed to the stock market, it’s time to explore the possibilities offered by trading accounts, especially automated trading solutions that enable you to limit your risk level.