Nerijus Mačiulis. Stock markets are blushing: where and how to invest now

It would be hard to find a class of financial assets that would not have fallen off a cliff this year. Not only stocks fell in price, but also the safest securities – government and corporate bonds. The US technology stock index NASDAQ has fallen 25 percent since the beginning of the year, while the S & P500 index fell 17 percent.

Some companies that flew high on unreasonable expectations, such as Netflix and Coinbase, have lost more than two-thirds of their value. Some others are still waiting their turn. Interestingly, Bitcoin has once again illustrated that it is not “digital gold” to protect against inflation and crises – the price of this cryptocurrency has fallen by more than a third since the beginning of the year and by more than half since its peak.

It is perhaps no surprise that the riskiest, or so-called, ‘growth’ stocks, which fell sharply during the pandemic, fell the most. These companies have often seen strong growth in the number of consumers and market share, with investors expecting high returns and profits in the future and ignoring the fact that they have been operating at a loss so far. The prices of such shares were greatly fueled by extremely low interest rates, which allowed companies to borrow cheaply for development, and the lack of alternative investments with positive returns.

As might be expected, and what has been written about many times in recent years, “value” stocks have suffered less, those whose price-earnings ratio has been much more modest. By the way, it is interesting that among the cheapest securities were the shares of the Baltic companies, which have depreciated by just over a tenth since the beginning of the year.

The main reason for such a large-scale sell-off was accelerating inflation and plans by central banks to raise interest rates to unprecedented highs. Markets are currently expected to rise in the US to 3% by the end of the year, with Euribor turning positive again for the first time in almost a decade.

So far, inflation in both the eurozone and the US has remained at its highest level in 40 years, so central banks will make every effort to raise interest rates and cut the supply of cheap money to bring it closer to 2%. cartels. Unfortunately, in this context, there is an increasing risk that, as the population faces record prices for energy resources, services, food and paying more for loans, the hitherto gratifying economic growth will fade.

The weaker economic outlook is signaled by, for example, the expectations of the euro area population, which have fallen to its lowest level since the start of the pandemic, and declining export orders from industry. In other words, after half a year, headaches due to inflation may be replaced by migraines due to recession.

How and where to invest in such an environment of greater uncertainty, multiple problems and increased risk? In particular, once the habit of periodic investment has developed, that is, part of the income will not be spent on a monthly or quarterly basis but will be used to meet future needs, it should not be abandoned even if stock prices fall. Forecasting the peaks and bottoms of stock markets is extremely difficult, so catching them is not successful for many.

Second, investors who invest periodically, even in the context of such a sharp drop in stocks, do not lose the money invested and retain their purchasing power. For example, the S&P 500 index has fallen nearly a fifth since the beginning of this year, but the stock is still up 24 percent. more expensive than it was in early 2020. The extremely bleeding NASDAQ index is still 33 percent this year. at a higher level than before the pandemic.

Finally, those who believe that many stocks may be too risky in such an environment of extremely high inflation and uncertainty have good alternatives. The war in Ukraine already has and will have a number of long-term geopolitical and economic consequences. One of them is an even faster move by Europe towards energy independence and renewable energy production. To this end, EU countries, including Lithuania, will provide even greater support, which can be used by every inhabitant.

For example, now investing € 10,000 in a 10 kW solar power plant is eligible for almost a third of the EU’s support. It can then “earn” more than € 30,000 over its 25-year lifetime, which would be saved by generating electricity instead of buying it.

For those who do not have such funds, there is an alternative to borrowing at a fixed interest rate without taking the risk of rising interest rates, and those who do not have suitable roofs can invest in solar power parks far from home. Such an investment may seem boring to many and does not provide a very high annual return, but its risk is extremely low.

In addition, investing in your own solar power plant not only offers an attractive return-to-risk ratio, but also creates benefits on two other fronts – reducing the consumer’s and Lithuania’s dependence on imported energy resources and contributing to reducing the planet’s pollution.

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