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High-Risk Investments To Avoid In 2022 – Bankrate.com

The Standard & Poor’s 500 Index in 2022 got off to its worst start in more than 50 years. And while the index has recently bounced off its 52-week low, the economy faces an increasing possibility of a recession. Meanwhile, the…….

The Standard & Poor’s 500 Index in 2022 got off to its worst start in more than 50 years. And while the index has recently bounced off its 52-week low, the economy faces an increasing possibility of a recession. Meanwhile, the Federal Reserve has shown that it’s going to do whatever it takes to rein in runaway inflation, and many market watchers think that means it’s all but certain to drive the economy over a cliff.

The nation’s central bank has been rapidly raising interest rates, pumping the brakes hard on an overheated economy. That’s turned stocks and bonds into a frothy mess, as investors assess the situation and figure out how to position themselves. But while short-term rates have turned up, the benchmark 10-year Treasury is off its highs as investors start to price in a recession.

Top 5 riskiest investments right now

So how do investors protect their portfolios for the remainder of 2022? One key way is to avoid the highest-risk investments, those that might not make it out the other side of a recession without taking a big hit.

1. Cryptocurrency

Cryptocurrency is a kind of digital currency that has taken much of the investing public’s fancy in the last five years or so. But it’s among the riskiest possible investments because it’s usually not backed by the assets or cash flow of any underlying entity. So crypto traders are basically trying to outguess other traders about which digital token will move higher.

Legendary investor Warren Buffett has come out strongly against cryptocurrency. In the April 2022 annual meeting of his company Berkshire Hathaway, Buffett said: “Whether it goes up or down in the next year, or five or 10 years, I don’t know. But the one thing I’m pretty sure of is that it doesn’t produce anything…. Assets, to have value, have to deliver something to somebody.”

Ultimately, the only thing backing cryptocurrency is investor sentiment, and that could dry up at any point. Bitcoin and Ethereum are already more than 60 percent below their all-time highs as of August 2022.

2. Consumer discretionary stocks

Unlike consumer staples – long a favorite of Buffett – where the products are purchased almost regardless of the economy, the results at consumer discretionary firms can be more volatile. Discretionary companies often depend significantly more on the overall health of the economy than do staples, meaning that discretionary demand fluctuates more during a downturn.

While some discretionary companies might show relatively stable sales, most others fluctuate much more. For example, hotels, restaurants and leisure are popular sectors when the economy is booming, but sales quickly fall when times get tougher and consumers cut back.

So …….

Source: https://www.bankrate.com/investing/high-risk-investments-to-avoid/

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