Every financial advisor may come up with different ideas to help us deal with the threat of a recession. However, these are the best investment tips you should know.

Will we have a recession this year or next year? This question is becoming increasingly crucial as prices and interest rates have risen sharply in the last few months. Equities fluctuate wildly, crypto winter persists, and energy costs are on the rise. Many people seek investment tips during a recession as a result of their growing concerns and the declining state of the world economy.

Every financial advisor may come up with different ideas to help us deal with the threat of a recession. However, there are a few pointers that come up frequently and are now considered common knowledge. What are those? Here are four (4) investment tips during a recession that you should know.

The Best Investment Tips During a Recession


Cash is King

Any emergency will be easier to handle when we have ample cash in our pockets. Therefore, one of the best investment tips during a recession is to boost cash or high-liquidity assets in our portfolio. Time deposits and money market mutual funds are two well-known examples of assets with high liquidity.

You don't necessarily have to cash out all of your risky assets. Simply rebalance your portfolio with more emphasis on safer assets, emergency funds, and long-term goals. Make sure you have enough emergency funds to at least survive for 6-12 months under zero cash inflow.


Be Conservative

In a growing global economy, it may be a good idea to trade popular cryptocurrencies or penny stocks. But we must exercise greater caution ahead of a recession. Investment decisions should also be more inclined to reduce risk than to pursue profit.

The bulk of our portfolio should be allocated to low-risk investments such as defensive stocks, dividend stocks, and government bonds. Defensive stocks relate to companies that meet basic needs of the people, such as food, pharmaceuticals, and utilities; sectors whose demands are fairly stable even during an economic downturn.


Maintain High-quality Assets

Which stock will you sell off before a recession if your portfolio includes ABC stock, which has an unrealized loss of 20%, and XYZ stock, which has an unrealized profit of 30%? Keeping quality assets (XYZ) in the portfolio while reducing risky assets (ABC) should be the priority during a recession.

Novice investors may choose to take profit on XYZ stock and hold on to ABC stock. They think profits from XYZ can increase their funds, and the losing ABC will turn into a profit in the future. But the fact is: stocks that are currently losing may find it increasingly difficult to turn around during a recession. In the long run, the total final loss of ABC may even be greater than the profits gained on XYZ.


Don't Panic

The history of mankind has proven that recessions never last forever. The economic cycle continues to alternate between growth and recession. Therefore, believe that "even the darkest night will end and the sun will rise".

Rather than panicking, you'd be better off keeping up with your regular trading and investment activities while staying focused on long-term goals. Short-term market turmoil is always short-lived. Negative sentiments never last. As such, today's losses can turn into multiple gains in the next few months or years.