2024 is a year of challenges and opportunities for financial investments, both in the bond and equity fields, with the recovery of the global economy and a progressive contraction of inflation, and an increasingly mitigated and apparently distant risk of recession, given also the implications linked to new technologies.
However, to invest safely you need to pay attention and avoid making some very common mistakes, so here are three mistakes to absolutely avoid.
Table of Contents
Don’t overestimate liquidity
Liquidity is an optimal resource, until it is no longer. Or, to put it in the American way, “cash is great until it isn’t”.
This unwritten “rule” has had greater echo and prominence, especially in the last two years, when the strong increase in interest rates by central banks, in particular the FED and the ECB, has brought new attention to cash.
Today, cash is still considered an attractive investment asset. However, with declining inflation and the prospect that central bank interest rates could fall again in the coming months, it is very likely that cash will return to where it was until 2021.
Until 2021, cash and liquidity were considered “trash” rubbish by many investors. This is because in principle, liquidity does not produce income.
Don’t underestimate diversification
Diversifying your investments is one of the basic rules to follow for those who want to invest, whether it be investments in shares, bonds, EFTs, currency, etc., and one of the most common mistakes lies in underestimating diversification.
One of the most widespread diversifiers is represented by bonds. Which, over the last 4 decades, have proven to be excellent diversifiers, providing a high margin of protection during phases of stock market contraction.
However, in an economic environment of high debt and high deficits, with a high risk of inflation, the bond market may not be the best parachute to protect against possible stock collapses.
In this sense, experts recommend relying on liquid hedge funds and gold, as alternative diversifiers to bonds.
Don’t underestimate exposure
Many investors make the mistake of underestimating exposures. Thus investing, in some cases in different securities, which however are exposed to the same vulnerabilities. And are therefore subject to a false diversification.
This happens because we often tend to think of our portfolios in terms of the weight of the assets and do not take the exposures of the individual assets into consideration.
To sum up
In conclusion, if you want to invest in 2024, you absolutely must avoid these three investing mistakes:
- Liquidity: attractive but risky in the long term;
- Bonds: no longer the only reliable diversifier;
- Portfolios: Consider exposure and sensitivity, not just weights.