Avoiding the 2022 Credit Crunch

The recent ‘credit crunch,’ stock market turmoil and global financial crisis that have impacted all our lives are not necessarily things that any one of us can protect ourselves against completely. The fluctuating fortunes of stock markets, the cyclical nature of housing markets, and the way in which bankers work and governments run economies are all outside of our control. However, there are elements of our lives that we can control, and one is the way in which we protect our personal assets, our savings and our investments as much as possible.

By diversifying an investment strategy as far as possible and balancing risk & reward carefully, it is possible to protect an overall financial portfolio. The very first rule to observe is that you never place all your financial eggs in one basket, i.e., you spread your cash deposits, savings and investments policies between banks and financial institutions, and between fund managers and across asset classes. This is diversification in its purest form, and it can be taken as far as you wish. You can diversify across currencies and between jurisdictions for example – but you have to balance diversification with rewards and returns. I.e. you could place £100 of you money with each bank in the world, spread across all major currencies and divided across asset classes, however there would be very little in each account and investment vehicle to attract interest and returns and effect compound growth. It would also be an administrative nightmare. Achieving the right balance of diversification is also important when balancing out risk.

Look not only at the underlying funds in which you invest or the institution you favour, rather look also at the jurisdiction in which your assets are held and therefore regulated and protected. Be informed about all elements of risk, and only then can you ensure you are successfully diversifying your entire financial portfolio against this risk. Life assurance savings vehicles & institutions are often far more protected than straightforward bank accounts.

Ultimately you need to have faith in the secure holding company managing your assets, and you need to ensure that you have your money spread between underlying institutions and across asset classes. You need to ensure you have a percentage of your portfolio in cash, a percentage in short to medium term Gilts (Government Bonds), and a further percentage locked away for the longer-term. Balancing risk and getting the very best for your money is all about taking a holistic approach to the overall secure management of your wealth. Using an offshore or EU approved portfolio bond as the holding vehicle can make this a very easy task with added security.

Leave a Comment