A recession is a widespread decline in economic activity, measured by negative GDP growth that generally lasts for more than a few months. Recessions are characterized by falling sales and production, wide-scale unemployment, and decreased spendable income. During a recession, different asset classes perform differently. Gold is among the best asset options that have skyrocketed during recessions from a historical standpoint. Alternatively, there are also some industries that tend to perform well during recessions. Some of these are communication services, Energy Sectors, Real Estate, etc. Here are some of the investment strategies to keep in mind during a recession:
Don’t Panic Sell:
Panic selling is a common mistake investor make when hit by a recession. A recession and bear market aren’t something to be anxious about. If your stocks are well-researched and chosen, your portfolio will eventually recover. Selling and buying stocks are decisions to be taken in the right mindset, and taking such decisions during market volatility can cost you a lot. The safest stocks to own during a recession are those of large companies with reliable profits and a long track record of success. Historically the gold and consumer staple sector has performed better during recessions.
Picking the Right Stocks:
If you are not an expert investor, don’t purchase stocks of an individual sector or company. With stock prices plummeting during a recession, you might be attracted to purchase a few individual stocks owing to an expected short-term outperformance. However, if you still want to invest in individual stocks or shares, research companies with strong balance sheets, healthy cash flow, and good business models. During a recession, you want to focus on companies where the demand for their products or services is relatively insensitive to the market volatility. Keep in mind that economic recessions are rare events and the various monetary and fiscal policies set by different countries promote quick recovery.
Diversifying investments is a key strategy that works during recessions. Invest your money into a wide variety of sectors across different risk levels of assets. Spread your investments across global markets as a strategy to minimize the effects of downturns in one area. Keep in mind that riskier investments always earn more profit, and by diversifying your portfolio, you minimize the risks of losing money which can have a bigger impact on your personal finance otherwise.
Take advantage of Cheap Stocks:
During a recession, stock prices of almost all industries plummet. This can be seen as a good opportunity to purchase some good-quality stocks at a lower price. These might include presently undervalued companies that are likely to prosper in the future or established brands that are hit by the present circumstances but are strong enough to weather the storm.