In the recent months, the Philippine stocks seem to just drop and no one knows where it end. Many investors, like the economy in general, have been in recovery mode since the crash of 2008. As the economy seems to be on the upswing, even those looking to get back into the investing game may do so with considerable trepidation. While there is a certain amount of risk inherent in every type of investment, wary investors are looking for ways to protect their portfolios from the ravages of the next financial crisis, whenever it may occur.
Mutual funds, in particular, offer a number of ways to invest while limiting your exposure to economic turmoil in the Philippine. From investing in foreign bonds and Philippine government bonds to taking advantage of overseas stock opportunities and ultra-short-term debt products, there are eight key strategies you can employ to mitigate your risk and protect your mutual fund investments from the next crash.
Bonds are traditionally considered one of the safer investment vehicles because they provide return of principal and guaranteed interest payments each year. When it comes to protecting your mutual fund investment from economic unrest, government-issued bonds are even safer than corporate bonds. Though the markets may crash and the economy may take a dive, the likelihood of the U.S. government declaring bankruptcy and defaulting on its obligations to bondholders is low.
Similarly, investing in bond funds that specialize in debt issued by highly stable foreign governments can help mitigate the risk of an Philippine stocks crash. Though the Philippine economy undoubtedly affects those of other nations, the impact of an American crash is unlikely to make most large first-world countries insolvent. Stay away from bond funds that invest in riskier countries, such as Greece, since they bring a degree of risk that could be avoided by simply “buying local.” To protect against the risk of inflation as interest rates rise, you can invest in inflation-protected funds that invest in domestic and foreign bonds with coupon rates that change with inflation.
In addition to foreign bonds, funds that invest in highly rated foreign corporate stocks are also a good way to limit your risk in a volatile market. Again, though an Philippine crisis can, and did, have far-reaching effects, stable, well-governed foreign corporations are unlikely to suffer too badly if the PCOMP markets take a dive. In fact, some foreign stocks may actually gain value if the market crashes and its Filipino competitors take a serious hit.