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Which investment possibilities are there for minimizing the risk that your cash savings (for simplicity let's say 100,000$) will severely lose value during the corona crisis?

The focus is on avoiding high loss, not on little loss or even high returns.

Details

Though there are a lot of similarities with preceding crises, the upcoming high amount of unemployment and newly "printed" money makes me wonder whether/how far the economy will further crash (see also Why isn't the market dropping like a stone with all the bad news?), and what my options are to minimize the risk of severe losses.

My research led me to the following possibilities for my savings, all of which have remaining risks I have difficulties to rate:

  1. in physical gold: that is quite costly and difficult to get now (while ETCs are not separate estate). Furthermore, the value might drop once it turns out that no high inflation is coming
  2. hold in cash: Though right now "cash is king", we might soon get a high inflation, which strongly reduces the value of cash. Furthermore, if banks go bankrupt, how high are the risks of bail-in? In the EU, we have EDIS (e.g. the German "Einlagensicherung" up to 100,000€ per person per bank), but the EDIS fonds is quite low and I do not understand the relation to bail-in.
  3. bonds: This has less risk than point 2 since banks usually go bankrupt before states. You can avoid loss from inflation by using inflation-indexed bonds. But which highly rated country is best? Switzerland, Germany, US? What if the bank holding your bonds goes bankrupt? Is there EDIS for banks?
  4. stocks: stocks are separate estate (even via ETFs). But the corona crisis is just at the start, so the stock prices might still drop severely and require many years to recover.
  5. crash fonds: they are supposed to protect you from falling stock prices, e.g. via (short term) futures. I cannot estimate their risk. E.g. Dirk Müller Premium Fonds (ISIN DE000A111ZF1) did not drop during the corona crisis (the long term share price does not go much up or down). But are these crash fonds trustworthy? The website and videos of Dirk Müller seem like a big marketing campaign, which makes me skeptical.
  6. real estate: an economic crisis usually also makes the real estate market drop after a delay. It is also a complex market and thus difficult to quickly find a good investment.

So how severe are these downsides? Did I miss further downsides or even better possibilities?

Should I combine several possibilities (also see How do I minimize the risk of my investment losing value?)? If your answers do not change my plans, I will successively invest in stock ETFs (MSCI World and MSCI EM), over several months. But during that time, I wonder whether holding all remaining savings in cash (point 2) is the way to go.

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    What you do you mean by ETFs (option 4)? You could invest in an ETF that holds assets in every one of the other options (gold ETFs, bond ETFs, real estate ETFs...). – Nosjack Apr 17 at 13:12
  • All investments have risk. In order to minimize that risk you first have to understand the investment. – Bob Baerker Apr 17 at 13:22
  • @Nosjack: good point (+1). I meant stock ETFs in option 4. About other ETFs: I did not find an ETF for inflation-indexed bonds only for high ranket governments. ETCs are not separate estate. I guess REITs have the deficit of the general option 6. – DaveBall Apr 17 at 13:26
  • @BobBaerker: exactly -- that's why I'm asking. Do you have advice how to get informed about an investment and determine when it is sufficiently understood? – DaveBall Apr 17 at 13:27
  • are you asking about investments or savings? They are different. They have different goals, and different time scales. – mhoran_psprep Apr 17 at 13:29
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You are correct, that all of those plans have significant downsides themselves, and no one here knows what will be the best strategy going forward.

If you believe that "the corona crisis is just at the start, so the stock prices might still drop severely" then you could stick to cash or government bonds (although yields are at historic lows right now). But what if you're wrong? What if business start to reopen in the next few months and the market recovers by the end of the year (I think this is a real possibility and am investing that way, but I could be wrong too :-) ). Physical gold is at a 5-year high, and since it's rise coincided with the equity crash, it's reasonable to believe that it will drop once the equity market starts to recover. Real estate is highly localized (unless you're looking at REITS which are more like mortgage bonds) and has high transaction costs.

Risk and return is always a tradeoff. The more return you want, the more risk you have to take. So there's not any one thing that is guaranteed to perform well. Further, your risk tolerance should be tied to your goals and your investment horizon - the longer your horizon, the more risk tolerance you have. The more you need to achieve your goals, the more risk you need to take.

Insurance (reducing downside risk) also costs money. You can look at things like spread options to reduce downside risk by giving up some upside, or buy puts and just pay for the insurance upfront, retaining your upside. Or you can buy less-volatile (but less rewarding) investments like government bonds (note that you should distinguish between government and corporate bonds, as the latter offers higher yields but has the possibility of defaulting).

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  • Great answer, thanks (+1). Since the first 100T$ are much more important to me than the following, my focus is on retaining its (inflation-adjusted) value. Are spread options and puts only for advanced investors? Are investment grade inflation-indexed government bonds in the corona crisis really still low risk? – DaveBall Apr 17 at 13:46
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    For options, you need to know what you're doing or you can get clobbered. For IIBs, they are low risk of default since they;re government (not bank) backed, but they do have reinvestment risk - meaning that you don't have any risk of losing your money if you hold on to them, but if you want to sell and reinvest in something else, they can drop in value as interest rates rise. – D Stanley Apr 17 at 14:59
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    I don't know about EU terminology but for US options... If one is willing to cap one's profit potential, one can collar a long equity position for little to no cost. Sell an OTM call to fund the cost of an OTM put. The end result is a defined profit and loss range with preservation of most of the principal. Collared long stock is the equivalent strategy to a vertical spread so if initiating a position, do the spread because it has fewer legs (less slippage and commissions) and is easier to enter and exit. – Bob Baerker Apr 17 at 18:41
  • There are no easy ways to make money. All the easy ways are exploited at the micro-transaction level long before small timers like us can dream of finding them - and even those are constantly evolving! – corsiKa Apr 17 at 22:55

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