Global stocks have plunged, extending last week's sell-off that was triggered by concerns the U.S. Federal Reserve is behind the curve in terms of cutting interest rates. We consider here several reasons for the global stock sell-off and give ways investors can protect their portfolios.
The Federal Reserve:
At its July policy meeting, the Federal Reserve held the federal funds rate at a 23-year high but did comment that there were improvements in inflation. Chair Jerome Powell of the Fed hinted at the possibility of cutting the rate in September if the decline in inflation continued. Poor manufacturing data and a weaker-than-anticipated July jobs report now have some worried that the Fed is moving too slow on rate cuts and hence actually pushing the economy into recession.
Goldman Sachs economists increased their estimate of a recession occurring within the next 12 months from 15% to 25%. However, recession risks are also "limited" because, "generally stable data, lack of large financial imbalances and a capacity by the Fed to cut rates if needed.
Impact on Global Markets
Japanese equities are leading the global sell-off—the Nikkei 225 plunged 12.4 percent overnight. Heavy selling was also seen in South Korea, down 8.8 percent; London, off 2.2 percent; and Germany, lower by 2.2 percent. Some of the reasons that may be adding to this volatility include the recent rise in interest rates by the Bank of Japan and the unwinding of the yen carry trade, where investors borrow in yen to invest in higher-yielding assets. These trades no longer proved profitable with rising interest rates and a strengthening yen; as a result, widespread unwinding began.
Warren Buffett's Moves
News came in that Warren Buffett's Berkshire Hathaway reduced its stake in Apple. While the team of Buffett began trimming its Apple holdings in Q1 for tax-related purposes, a recent financial statement revealed that Berkshire's stake in Apple was valued at $84.2 billion as of June 30, down from $135.4 billion at the end of Q1. It makes the move in the wake of recent sales by Berkshire of Bank of America shares, boosting its cash position to $276.9 billion.
Strategies for Investors
The key during sharp market sell-offs is to not panic. It is a long-term exercise in investing in the market, and wealth gets built over decades, not days. Corrections in markets are quite normal and may re-set and normalize stock prices to set the stage for future gains.
Some classic safety bets that help lower risk in the market include dividend stocks, which typically outperform in down markets. Investing in low-volatility stocks is also a way for investors to trim losses and avoid selling in a panic. Dividend growth ETFs or low-volatility ETFs can be chosen for this purpose to make a basket of stocks rather than putting it in a single company.
During economic downturns, investors seek stable and reliable assets to protect their wealth and generate consistent income. But even the traditional markets like stocks and bonds can be unpredictable and heavily influenced by macroeconomic events. In contrast, a lesser known asset investors should look into is music royalties which present an attractive alternative investment, offering uncorrelated yield and passive income. This article explores why music royalties are a sound investment choice, especially during a recession, sell-off, or market correction.
Uncorrelated Yield and Passive Income
Music royalties provide investors with access to royalty streams that were previously available only to industry insiders and institutional funds. These royalties are uncorrelated with public markets, making them a pure form of alternative investment. They have a proven track record of generating consistent income, often with double-digit yields that rival bonds and dividend-paying stocks.
Benefits of Investing in Music Royalties
1. Uncorrelated Assets
Royalty payments, particularly from music, are independent of stock and bond market fluctuations. This independence makes them an excellent option for diversifying an investment portfolio and reducing overall risk.
2. Competitive Yield
Music royalties have a history of delivering strong earnings. They provide an attractive return on investment, often exceeding the yields of traditional income-generating assets.
3. Passive Income
Investors in music royalties earn money passively, receiving regular payments without the need to actively manage the asset. This "cut off the top" income ensures that investors are first in line to receive generated cash flows.
Investment Options on Royalty Exchange
1. Term-Based Investments
Investors collect royalty income for a fixed period, typically 10 years. After this term, the royalty income reverts to the original seller. This option provides access to a broader range of investment opportunities and diverse catalogs at lower costs.
2. Life of Rights Investments
Investors collect royalty income for the duration of the copyright, which is the creator's lifetime plus 70 years. This long-term investment offers stable and potentially lucrative returns, but competition for these assets is often fierce.
Risk Mitigation and Valuation Support
Royalty Exchange vets and verifies all royalty opportunities before listing them, minimizing ownership disputes and transaction risks. The platform provides detailed performance metrics and educational resources to help investors confidently build their portfolios. Additionally, Royalty Exchange offers administration services to streamline income collection and distribution.
Flexible Portfolio Development
Investors can acquire royalties directly from rightsholders or other investors, with options to make manual or automated offers. This flexibility allows for customized portfolio development based on individual investment strategies and criteria.
Why Music Royalties are a Top Alternative Asset
Music royalties offer a unique combination of consistent cash flow, long-term asset stability, and the potential for capital appreciation. The rise of digital streaming has revitalized the music industry, creating new revenue streams and increasing the value of royalty assets. With the global proliferation of smartphones and streaming services, music consumption continues to grow, further enhancing the attractiveness of music royalties as an investment.
Conclusion
In the current economic climate, music royalties stand out as a compelling investment option. They provide uncorrelated, yield-generating assets that offer stable and passive income. By investing in music royalties through platforms like Royalty Exchange, investors can diversify their portfolios and protect their wealth during recessions.
For those interested in exploring this investment opportunity, creating a free account on Royalty Exchange is a straightforward first step to access a wide range of music royalty assets available for auction.
