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We are living amidst the unsettling world that is always awash with unprecedented events. Not only has the aftermath of Covid-19 exacerbated global existing issues, but the epidemic also spells a string of dreadful disasters in both political and economic terms. Whether individuals – regardless of net worth – enter the investment sphere this time is a sensible decision. The answer from financial experts is a firm “YES” as there are always opportunities even in the middle of worldwide turmoil. In this article, we will collect all possible investment ideas that should be taken into account this year.
How Can I Invest in Today’s Economy?
In the mid-2000, Fortune, a multinational media organisation, reported the top 20 largest companies for bankruptcy filings based on the previous investigation of Bankruptcy Data in this year. Meanwhile, over the first quarter of 2021, 347 companies were declared insolvent mainly because of the heavy tolls taken by the pandemic.
Little wonder that restaurants led the list. Facing long-term lockdowns and social distance, various restaurants transformed from their traditional business model to a digital one and struggled to survive the crisis. However, shrinking remunerations imposed a strict spending restriction on employees, not to mention limited movements – whether inbound or outbound. Unsurprisingly, the tourism industry was profoundly impacted by Covid-19.
Other industries also suffered similar repercussions. The International Labour Organisation (ILO) found that the global unemployment rate accelerated by 1.1% (33 million workers) to 6.5 percentage points in 2021. The resultant labour income loss was predicted to drop by 8.3% which equates to US$3.7 trillion. This finding could translate to declining expenditures on necessities, healthcare services and many more.
But global turbulence is not confined to Covid-19 related issues, but rather gets more nuanced. When post-Brexit negotiations have yet to end, the still-fragile relationship between the United States and China, coupled with a post-Trump insurrection at the US Capitol, results in more tensions. Nevertheless, successful vaccine trials and subsequent rollouts in the turning point of 2021 seemingly make the world population more positive in outlook.
Despite the coming of new Coronavirus variants that provokes another alarm among nations in 2021, economists still detect tremendous investment opportunities. Following and grasping market signals are what you should not neglect. Moreover, unless you know which proper investment products to purchase this time, you ought to consult a financial expert to make a prudent decision. The key takeaway is you had better keep three to six months’ worth of living costs in savings in precaution for emergency cases before jumping into any markets.
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10 Best Investments in 2021
High-Yield Municipal Bonds
Municipal bonds, commonly called munis, are issued by the local government, particularly a municipality, city, state or county. These securities look appealing to investors who seek tax-advantaged instruments. Besides their modest interest payments paid twice a year, investors would receive principal on the bond’s maturity date. Normally, investors may go long on munis individually or through mutual funds which offer more exposure to various municipal bonds.
Terri Spath, a chief investment officer at Sierra Mutual Funds, is highly advised for investing in high-yield munis such as the Black Rock High Yield Municipal Bond Fund (MDYHX). In a scenario of Covid-19 dominating the headlines, multiple municipalities have reduced expenditures and maintained liquidity. With that said, the credit rating for municipal bonds has increased significantly and default risk is consequently lowered.
What’s more, Terri encouraged investors to buy munis with actively managed funds in lieu of choosing such a passive approach as ETFs. However, according to Bloomberg Intelligence ETF analysts Morgan Barna and Eric Balchunas, those who wish to invest in ETFs might observe the First Trust Municipal High Income ETF (FMHI).
Government Bond Funds
Government bonds are debt-based securities issued by national authorities to fund daily operations or projects at all scales. Thus, this type of bond is sometimes known as sovereign debt whose credit outlook depends much on the economic and political stability of the issuing country.
On the ground of low interest (coupon) rates, government bond funds accompany lower default risks because governments back them up. Bear in mind that coupon rates can be either fixed or floating as per different jurisdictions. Compared to traditional government bonds, their floating-rate counterparts remove interest rate risk out. Assuming the interest rate goes up, fixed-rate bondholders will suffer fewer benefits whilst floating rates mean greater yields.
Normally, retail investors who wish to possess such secured instruments might work with brokers, exchange-traded funds or financial corporations to have a wider selection. Some best government bond ETFs include iShares 1-3 Year Treasury Bond ETF (SHY), iShares U.S. Treasury Bond ETF (GOVT) and iShares 3-7 Year Treasury Bond ETF (IEI).
Global economic prospects that have looked dim in 2021 hardly prevent the European Union, the UK, Japan, China and South Korea from deploying “net-zero” carbon emissions plans despite trillions of dollars allocated to this industry. Even President Joe Biden’s administration targets to achieve a similar goal by 2050.
According to the International Energy Agency (IEA) report, renewables used for electricity generation climbed by roughly 7% in 2021, which compensates for the plunge in biofuel consumption for industry and transportation. This resultant increase is driven by wind and hydropower grid additions of wind as well as the construction of renewable energy plants.
As a result of higher demands for such fuels, the shares of renewable project developers and equipment manufacturers have performed better than other fuel providers. Considering a promising future, you may think of iShares’ Global Clean Energy ETF (ICLN) or the First Trust NASDAQ Clean Edge Smart Grid Infrastructure Index Fund (GRID).
Tremendous news on vaccinations has pushed up the stocks market. Instead of merely focusing on domestic instruments, investors may direct their attention to outstanding foreign markets to diversify their investment portfolio.
Brian Singer, a portfolio co-manager at William Blair Macro Allocation Fund, indicated that Vietnam is one of the compelling equity markets with the during-Covid growth rate of 3% in 2021, projected in the gross domestic product (GDP) index. Apart from major domestic drivers such as increased consumerism or demographics, Vietnam has become a participant in important trade deals and recently signed the EU-Vietnam free trade agreement. Meanwhile, Vietnam is recognised for its ability of weathering pandemic-related challenges effectively.
On the other hand, Ian Harnett, a chief investment strategist at Absolute Strategy Research, recommended looking to Japan. Confronting repeated Coronavirus hits in North American and European regions, economists observe the economic upturn from uncertain circumstances in Asia and choose Japan as a better venue to invest in.
Following the legendary stock-picking investor Warren Buffett, individual investors can take a closer look at such Japanese offerings as Mitsubishi Corp. (MSBHF) or Mitsui & Co. (MITSY). Meanwhile, Vietnam’s stocks are often traded through managed funds including mutual funds, ETFs or close-ended funds, typically VinaCapital Vietnam Opportunity Fund Ltd. (VOF.LN) and Vietnam Enterprise Investments Ltd. (VEIL.LN).
Exchange-Traded Funds (ETFs)
Investing in ETFs means purchasing a basket of securities traded on a stock exchange or through a brokerage company. Besides municipal and government bond ETFs as well as renewable energy ETFs you can ponder over, financial specialists also suggested placing money in foreign equities from Japan and Vietnam. Giving the mentioned descriptions of those countries, financial analysts suggested investors to factor in the VanEck Vectors Vietnam ETF (VNM) and the JPMorgan BetaBuilders Japan ETF (BBJP).
High-Quality Cyclical Stocks
Significantly influenced by macroeconomic changes, cyclical stocks appreciate in value when discretionary services or products of issuing companies are in high demand. Such instruments represent airlines, hotel chains, restaurants and industrial companies.
Despite looming uncertainties in economic terms, Russ Koesterich, a portfolio manager at BlackRock Global Allocation Fund, still felt optimistic about top-notch industrial companies. He advised investors to focus on niches with income consistency and great profitability (e.g. speciality chemicals or semiconductors). Balchunas seemingly had a point and recommended investing in the Invesco Dynamic Semiconductors ETF (PSI).
S&P 500 Index Funds
Over the last quarter of 2021, S&P 500 experiences a rally of 24%, as a consequence of successful vaccine trials. Uniting a wide range of bonds and stocks in a basket, an index fund is inextricably linked to tax advantages but sports a lower rate of return as well. For value investors such as Warren Buffett, committing money to cost-efficient S&P 500 index funds like the Vanguard fund is a prudent and relatively cheap strategy for capital diversification.
As a response to fears of macroeconomic uncertainties and low-interest rates imposed by central banks during the pandemic time, investors endeavours to diversify their investment portfolios by looking for new instrument classes. Moving forward, both retail and institutional investors re-evaluate the potential of cryptocurrencies, especially Bitcoin, in sharp contrast to the bleak situation of those digital assets at the beginning of 2021. Even publicly listed firms including Square or MicroStrategy Incorporated are not beyond the scope of this development.
Many countries are confronted with an economic catastrophe, indirectly posing their currencies to the edge of depreciation. However, investors still pick up some positive signals in the forex market. The compatibility of trading platforms in all types of operating systems, coupled with social distance and ease of access, has led to a soar in new accounts registered with forex brokers. Thereby, participants, especially newcomers, should look to majors and some powerful minor currency pairs.
Meanwhile, those who raise doubt over the economic recovery within a few next months are likely to seek ways to insulate their portfolios. Of which, jumping into safe-haven instruments is an encouraging option.
Despite a weaker economy driving the sudden decrease in household and government spending, the real estate market has captured positive news on higher demands for homes.
The main factor behind this boom is mortgage rates reaching all-time bottoms, contrary to the late 2021 predictions of Realtor.com about the rate rally in the following year. No real estate experts anticipated the surprising plot of 2021 constructed by the Covid-19 pandemic and also guaranteed how long the current trend would last. However, if those rates are kept low in 2021, buyers could look for ripe opportunities in this market – whether you make a buy-to-let investment or speculate on the property’s higher price.
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