Inject your capital into various low-risk sources, among other crucial guidelines.
5 min read
The opinions expressed by collaborators are personal.
Given the extraordinary global circumstances we are living through, many investors now fear that another recession is underway. It makes sense, as recessions are often the result of a sharp drop in spending, although most of the causes of recessions cannot be predicted in advance.
Before such a circumstance is certain, it is a good idea to plan ahead and decide on your investment strategy now. A recession does not have to mean that all investments must be put on hold; it just means that there are different industries and types of companies that are safer than others. Here are some quick tips to keep in mind.
1. Only low risk investments
A recession is not the time to experiment or take risks with your investments. The most important aspect of anyone's recession time investment strategy should be playing it safe. This involves avoiding investments in highly leveraged or speculative companies. Focus on finding companies with good cash flow and low debt for the safest investment options. And as a general guideline, try not to take significant risks in an already uncertain moment.
2. Invest in basic consumer goods in the stock market
When looking for safe investment options in the stock market, according to the previous point, it is a good idea to focus on consumer staples or essential items that people will need (and buy) regardless of their financial situation. They generally include food, beverages, including alcohol, certain household items, and tobacco.
3. Focus on non-cyclical and recession resistant industries
Cyclical goods and services are best avoided in uncertain times. These are non-essential things that consumers will spend money on less often, perhaps influenced by the time of year, the current economic condition of a typical home, and a host of other factors.
During a recession it is better to focus on finding non-cyclical industries that offer goods and services that are in constant demand throughout the year. In addition to the consumer staples mentioned above, these recession-resistant industries include supermarkets, discount stores, alcohol manufacturers, cosmetics, and funeral services.
4. Ensure sufficient diversification
The old saying about not putting all your eggs in one basket comes to mind. Good general investment advice is not to group together into a single sector, even when it includes the aforementioned consumer staples.
This is doubly important during as unpredictable a time as a recession. Diversification across all industries will protect you from further loss if a particular product or industry loses value. Equally important is diversification between asset classes, for example stocks, in addition to fixed income and commodities.
5. Invest in real estate
Although a major recession can bring serious losses to many industries, real estate, as long as prudent investments are made, is generally not among them. The recession generally leads to a drop in home values, which means you can buy a property at a lower price and sell it for a big profit when prices rise again after the economy and markets have recovered. Meanwhile, you can rent the property to a tenant, generating reliable passive income during the interim period.
6. Dividend shares
Dividend stocks create passive income. After investing in a company, you essentially receive a share of the profits from it.
In general, it is recommended to look for companies that have a low debt / equity ratio. Just to be completely sure, you may want to focus only on fully trustworthy companies, i.e. those that have increased their dividend payments for at least 25 consecutive years.
7. Precious metals
In the commodity market, gold in particular is widely known to retain its value during periods of uncertainty and recession. Silver tends to work quite well during recessions, and precious metals in general are a relatively safe investment option.
Take good care of yourself and invest wisely.