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.
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.
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.
See Also: How to Invest in Stocks with eToro
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.
Oct 31 2022
Feb 17 2023
Bayu : Never plan to buy a home in times of crisis. Crisis means no job, no job means no money, and no money means you can't buy anything, because you can't buy anything, store hope you buy will go bankrupt. And this cycle will affect all sectors during the crisis. And the affect that may get into you is failed to paid the mortgage since it is hard to get money and the rate of the bank will be higher.
If you have spare money, it's okay, but you shouldn't buy a house. And if you have no idea to invest, just keep the money and hit the spend fee.
Feb 17 2023
Thank you for the article, in times of crisis like today. I think it is better to invest my money in an investment. But I really don't know why the author says cash is one of the best. In the meantime, I am very afraid of my existing assets depreciating.
My question is:
I hope it can be answered as far as possible. THANK!
Feb 17 2023
Sebastian Nicholas: Gosh, some people have said that Forex is not affected by recession. You can still make money there no matter what, even in times of crisis, as long as trading continues. But of course, a crisis occurs that can affect prices in the foreign exchange market which can often fluctuate
I mean, it's become an unpredictable market. If professional traders can see the market with this situation, then we beginners (in case you are just starting out) cannot trade in a safe and sound as in normal situation.
So I think you can trade during a recession. It is very possible and still very profitable but if you can read the market
Feb 17 2023
Sebastian Nicholas: I agree with the author. Money is king. I mean I had a bad experience in 2008. So I just started buying a house. Almost 95% of my money was used to buy this house. And in that month, Global Financial went through the crisis, causing Lehman Brother to go bankrupt.
Man, a lot of mortgages fail so most homes in the US sell for very cheap. The real crisis started in 2007, broke out in 2008. Since I had a lot of money, I managed to buy a house with money even though 95% of my money was used. And after many years, my house in there is expensive. What if I want to sell this house. I can get over 200% income.
That's why if you keep some cash in your pocket, you can try your luck in times of crisis, having purchasing power to invest.
Feb 17 2023
Sebastian Nicholas: The best investments for me during a recession were gold and US dollars. But remember not to spend all your money on gold investment, because you need money to meet your daily needs. It is important to prepare cash, without cash you will not be able to buy anything. And don't use that reason to exchange gold or US dollars into cash. However, since gold and US dollars can be your targets to keep your asset's value from falling, it's best not to trade it, since if assets are falling, it will be difficult to recover. That's how money is used! Cash is the king!