The best way to invest correctly during a recession starts with the correct attitude. You need to be prepared for a recession, by having most of your cash in liquid assets ready to be redeployed. Many people tend to panic during a recession and sell off their investments at a significant loss. These are opportunities for you to buy in as these investors continue to sell and push prices down. At the same time, interest rates will also fall because central banks need to inject more funds into the market. This means that it is much cheaper to borrow money during recessions for business growth.
Many companies will also embark in a variety of cost cutting measures to regain competitiveness and improve their margin. Long term effects from such improvements means that business profits will be very much higher once the recession is over and stock prices will recover to their original highs.
It can be very difficult to get your stock market timing right on a daily basis, but it is much easier to enter long positions and invest in blue chips companies with large market capitalization during a recession. These stocks tend to lead the market during a recovery, and you can profit comfortably without the stress and difficulties of day trading.
Bond investments are very popular during bear markets and recessions. Many financial planners will recommend their clients to adjust their investment portfolio, by decreasing equities and increasing bonds. For investors willing to accept higher risk for bigger returns, they can consider buy junk bond funds, which have historically produced the highest yields on investments after the junk bond market has bottomed out. This is because the impact of declining interest rates during recessions is magnified by the fact that junk bond carry much higher rates. This actually increases the price for junk bond funds, increasing the returns for junk-bond investors. As you can see, the average yield is actually much lower than online 500 cash loans, so thats why savings for emergency is an important goal.
If you are not comfortable investing your money during a recession, you can simply park your funds in interest bearing money market funds until market sentiment has improved and the first leg of a bull market run reappears. This is the preferred approach for low risk investors and those who are nearing their retirement age and cannot afford another significant drawdown in their investments. Although the yields on money market account is very low, there are very little risks involved and you can keep your money safe.
This is more suitable for mid term or long term investors who believe in the strength of the U.S. economy. You should not be too concerned with the daily fluctuation in stock prices over the next few months, but you do have a positive outlook that the market will be trading back at its high prior to the recession crash. A good way to do long term investing is via dollar cost averaging up, that is you gradually buy a company’s stocks such as Apple in small lots every month as long as the long term trend is bullish (many technical analysts consider a stock to be bullish if prices remain above its 200 day moving average).
To make better investments during recession or market crash, you can follow these tips. Firstly, do not be afraid to invest when everyone is uncertain when the recession will end. Avoid trading stocks over short term, think longer term instead. Diversify your portfolio and go beyond stocks or bonds. Consider diversifying among treasury bonds, money market accounts, and CD especially if you are nearing retirement age.
During a recession, interest rates will be very low and this is a great time to borrow money especially through fixed rate loans to lock in the low interest rates for the next 10, 20, 30 years. Doing a bad credit home loan refinance can save you some money due to cheaper rates. At the same time, home prices tend to fall during a recession due to lack of home buyers. This situation actually makes recessions the best time to buy a home cheaply. If you have the cash available, property investment during recessions is a good idea since you can hold it till the home market rebound and sell the house for good profits.
You can check with the National Association of Homebuilders (NAHB) for the current sales in housing. The NAHB produces the Housing Market Index (HMI) based on single family home sales and is seasonally adjusted. A HMI rating of 50 indicates a neutral level where similar numbers of positive and negative feedbacks are received from home builders. During the 2008 recession, the Housing Market Index is around 32, which reflects a pessimistic outlook for real estate for the next six months. For investors sitting on big cash reserves, this is a good time to take advantage of falling home prices due to poor market sentiment.
Both resale and new home sales tend to steady decline in value during recessions, but you should still research and pick great undervalued homes for investment. This is because when the economy recovers, certain home markets tend to rise faster compared to others, especially for luxury property in upmarket districts.
The best advice on how to invest and profit from a recession is to carefully consider the perceived risks and evaluate whether it is exaggerated. Although investing always carry some risk, the upside potential is actually a lot greater when you are at the market low. Most people end up buying high and selling low because they have a misguided fear of recessions. A lot of rich people enter the market and pick up cheap investments during recessions that multiply in value once the economy recovers. You have to carefully manage your own risk exposure or play it safe, by distributing your capital in various assets such as equities, properties, currencies, precious metals etc.