Investing during times of crisis | BNT Diamonds
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How can I invest safely during times of crisis?

30 Aug 21

A globalised economy offers many possibilities, however, complex logistics chains and mutual dependencies also make it more vulnerable. Whether it's the coronavirus pandemic or just an individual ship that blocks the Suez Canal, the effects have very quickly become apparent, even in countries presumed to be economically stable. This time it was possible to avert the worst possible outcome, however it does raise the question: Which financial investments are actually secure in the worst-case scenario?

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What are the possible economic effects of a crisis?

We are living in the longest period of peace that Europe has ever experienced. The economy and our level of prosperity has been consistently growing for a number of decades, the stock markets jump from one record high to the next, and property prices are continually on the rise. It is difficult to imagine that this progression might, at some point, come to an end.

However, history has unfortunately repeatedly shown that global crises that shake the entire economic system, and completely change the rules of play that had previously been in place, are more than just excessive scaremongering or fantasies.

After the terrorist attacks in New York on 11 September 2001, the 2008 sub-prime crisis, and within the context of the coronavirus pandemic arising at the end of 2019, it has become apparent that the global economy can recover very quickly. However, other examples from history, such as the global economic crisis of 1929 and the 2nd World War with its many atrocities, all make us aware that the comfortable situation in which we currently live should not be taken for granted.

The scenario of a global crisis, that were to shake our economy and democracy and cause them to collapse is improbably, but not unthinkable. To ask oneself the question as to which investment really offers protection in a global crisis situation is a wise, proactive approach.

Up until now, the central banks have generally been able to absorb more serious consequences by means of very generous monetary policy, however, printing money is by no means a universal remedy for all times.

Which investments offer genuine security in times of crisis?

Shares offer above-average return opportunities in the long term, but are the most vulnerable to crises. They do not react merely to the current situation, but also, and in particular, to expected future developments. They are a form of seismograph, that reacts right at the outset, as soon as economic prospects start to dim.

Bonds and fixed-income securities are not sensitive to short-term crises. However, the example of Argentina shows that any bond is only as secure as the capital strength of the issuer. This can change over the course of several years. In the event that an issuer were unable to pay out, the entire investment is threatened.

When it comes to shares, bonds and fixed-interest securities, there exists a further problem: they exist only in intangible form, as bits and bytes within computer systems, no different to Bitcoin or other cryptocurrencies. If critical electronic systems were to collapse, these investments would no longer exist.

Properties are considered safe harbour, with prices currently at their highest level ever. Some experts are already talking of a bubble. At first glance, a property may seem like an ideal investment in times of crisis, however what if a war or civil war were to break out, if your had to leave your house or were dispossessed? What if a natural catastrophe, climate change, or a nuclear accident such as those in Chernobyl or Fukushima were to make entire regions permanently uninhabitable? The risk of such an event is extremely negligible, but it is not zero.

Gold and precious metals are well suited for investment during times of crisis, at least in their physical form. At the same time, they have huge weight - carrying around assets in gold is practically impossible. A 250 g gold bar currently costs around €12,500, meaning that €50,000 in gold weighs an entire kilogram. Gold is unfortunately also increasingly prey to speculators, who gamble on price changes without actually owning physical gold.

Diamonds combine high value with a small footprint - a one-carat diamond has a weight of 0.2 grams. Even large values in the form of diamonds can be conveniently tucked away in an envelope, in your trouser pocket. They are the ideal safe-haven currency, and are in demand all over the world. Their value is not dependent on company profits, the ability of states to pay out, or the property market. They are only traded physically, there is no speculation. Diamonds have proven their resistance to crises more than once.

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How likely is it that major crises will occur?

Given the diverse economic ties that exist, global wars have become extremely unlikely. Russia, China, the USA, and the EU are all dependent on one another. In spite of politically motivated, symbolic measures, such as punitive tariffs, there are at present no longer any countries or regions that are self-sufficient and could afford to become isolated from the rest of the world. We are dependent upon one another, and yet conflicts, wars, and civil wars are by no means out of the question. The terrible civil war in the former Yugoslavia at the end of the 20th Century took place right at the centre of Europe.

The coronavirus pandemic has demonstrated how quickly the improbable can occur, how scenarios dismissed as the theories of doomsday prophets can suddenly become reality. Who would have thought in autumn 2019, that FFP2 masks would ever become a standard fixture on streets in Europe, that businesses, the gastronomy industry, and cultural establishments would suddenly have to close, that travel would be restricted and border controls introduced? Probably not very many people.

Are there reasons to fall into fear and panic? Clearly the answer is no. To consider investing in crisis times, to diversify your own portfolio a little, and to place some of your own money in diamonds, is without doubt a good idea.

Are you interested in purchasing 100% natural diamonds as an investment, at a very attractive price? The experts at BNT Diamonds would be happy to advise you. Contact us via email of Chat or call our team directly on +32 3 201 24 90.

With this article, BAUNAT strives to inform you thoroughly about investing in diamonds. No investment can be guaranteed to be without risk or fully according to your expectations. That is why we recommend to research the risks and aspects of investing in diamond properly to ensure that you make the right choice for your portfolio.