The latest news out of Washington would imply that the government is getting closer to reaching a middle ground in terms of deficit slashing but the lack of resolution continues to worry investors. This past weekend, Egan-Jones lowered its rating on the nation's debt, prompting anxiety that further downgrades from larger firms like Moody’s could be ahead. Essentially, until this threat is eliminated entirely, the direction the market is headed is unclear. Earnings can be positive in one sector only to plummet in another. The housing market has not recovered but retail is thriving. The threat of a European debt collapse is put on hold only to be eclipsed in the news by America's deficit issues. The direction of the market is uncertain and many investors are looking to disaster proof their portfolio without relying on it as an inevitability.
There are a number of way to do this.
1. Leave metals behind- Investments in gold, like SPDR Gold Fund (GLD) look appealing in times of uncertainty. Should the U.S. default on its debt, gold would push higher. The fact of the matter; however, is that gold is currently at a record level, buying now would be a pricy endeavor that could pack considerable risk in the event the U.S does not default on its debt. Buying gold at these prices, inflated by a sharp two week rally, would ignore the possibility many investors will shed their holdings if the threat of a default is removed. While raising the debt ceiling could prompt higher inflation, the price of gold right now appears to be factoring in the more dramatic of the options; a U.S. credit downgrade.
2. Diversify-Emerging markets have proved both popular and profitable in recent years as massive nation’s like China and India prove their ability to direct prices of commodities and broaden their own economies. Southeast Asia, South America and Eastern Europe have also shown major potential for growth and perhaps investing outside of the U.S. is a good idea during a time like this. Additionally, the pricing for these markets is attractive in the aftermath of the Middle East Crisis. It’s important to note that while the U.S. and many Western European nations struggle with debt issues, a recovery is being driven by nations like China and India. It’s a changing landscape and it’s sensible to invest in a way that reflects that. Additionally, the recent efforts to curb inflation in these nations has made the threat of losing out on a fixed payment more mild. One option for a time like this is the Oppenheimer Developing Markers fund (ODMAX), which has had a nearly 12 percent average return over the past three years.
3. Go for Quality- Major tech companies like Apple (AAPL) and Intel (INTL) which have excellent reputations and a long history of modernizing themselves to the markets are still good investments at a time like these. Just yesterday after the bell, Apple released its best earnings in its history with profit up 125 percent. Its latest cloud components could help that reign continue and makes Apple a solid buy. The one worry is that a weaker economy would impact consumer spending and make people less likely to purchase Apple’s wares. Intel, with its reliance on the sale of computers has a similar problem; however, both companies operate internationally and the growing demands for electronics overseas would offer a buffer for the tech goliaths.
For those who find the threat of weak consumer confidence too much to a take, they could consider investments in companies that rely less on disposable income and more on necessity. An example of this could be AT&T (ATT), a large-cap, dividend-paying stock that’s liquidity makes it easy to sell and thus safer in the event of weakness. That said, with a nearly guaranteed customer base, unlikely to budge regardless of the state of the economy, AT&T could be an advisable choice in a market like this.
DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer