When a geopolitical crisis unfolds, the entire economy goes into a tailspin. A common investor tries to keep his deposits and investments safe in the time of crisis. Soon after the US pulled out its forces from Afghanistan in August 2021, Taliban took over the reins of Kabul. As a result, there is an immediate exodus from Afghanistan, most people leaving their assets behind. Even during the US subprime crisis in 2008, eight million people lost jobs in the US alone and they had to sell their equities and bonds at throw away prices just for livelihood.
So, what should an investor do to avoid losing control over his assets and investments after such geopolitical developments that are catastrophic for the economy and financial markets?
To stay safe, the general principle is to keep your investments as diversified as possible. These are the various options in which investments should be made to avoid losing the entire fortune during geopolitical crisis:
1. Domestic equity
2. Domestic Debt funds or secured bonds.
3. Bank deposits
4. Keep the entire family properly insured
5. Some investment should be in gold also
6. There can be some investment in foreign funds/ equity also. Nowadays, the overseas investment has been liberalised, so one can look at that option also to some extent
Deepak Kumar Aggarwal, a Delhi-based chartered account and financial adviser, says, “When you have diversified your investments into cash, gold, equity, debt, crypto, real assets and mutual funds, then some of your asset classes will remain safe -- even during the time of extreme crisis. When one asset class is soaring, one should refrain from selling the other assets to ride the high tide. This leads to a diverse mix of investments.”
Patience pays
Experts advise that the investors should remain invested even during the time of crisis instead of resorting to panic selling. The geopolitical crisis keeps happening, albeit not very often. “We had such crises several times in the past at least in the last 100 years,” says Vijay Singhania, Chairman, TradeSmart. So, the key is to stay invested – come rain or shine.
Part of the reason for the growth of Nomura, a Japanese financial holding company, can be attributed to the fact that it remained invested during all such crises — even during the great depression of 1930. Famous analyst and Investment Guru W D Gann also suggested that the investors remained invested even during the Second World War.
So, unless there is a world war leading to nuclear fallout, the common people should not worry, so long as they have not put all their eggs in one basket.