Where To Invest During A Recession

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“Where to invest during a recession” or “How to invest during a recession” or “What to invest during a recession” are the main questions investors ask frequently. I tried myself best to give right answers to those questions.

Understand what is a correction and what is a recession (correction vs recession)

Before come to the main points, investors must have an idea on what is a correction and what is a recession. A correction cannot be considered as recession and vice versa.

What is a correction?

Correction in the stock market means, a sustained decline of value of the stock market index or the price of an individual asset. e.g. stocks. A decline during the correction time generally between 10 to 20% reduction in the value of stock market or asset from its recent peak.

Identifying the Intrinsic Value of a business is very important to invest during a correction and to avoid investment lose.

What is a recession?

Recession is the significant decline in an economy performance that may lat for several months. Recession would hugely affect the employment, manufacturing, GDP (Gross Domestic Product), drastic consumer income and consumer purchase power etc. In other words, recession is a decline in the economic output of an economy accompanied by a decrease in income and employment.

What to invest during a recession?

If the economy going through a recession stage, do still investors have options to invest? If so, what are the investment they can make during a recession? Here is the answer for this:

Remember, recession is giving a vast opportunity to investors to either buy the stocks of fundamentally strong companies in a discounted price or sell the stocks in hand in a low price and bear the lose self. I prefer the first.

Stock investments during a recession help investors to tap full advantages of Dollar Cost Averaging

Recession is the best time for investors to invest in stocks systematically. It will give them advantage of Dollar Cost Average. Remember, not all the sectors will get affected with recessions. There are few recession resistant industries that investors should be aware about: :

  1. Consumer good manufacturing or consumer staples – No matter what happens in industry, people need basic items such as toothpastes, soaps, detergent, shampoo, eatables, personal care etc. So companies in the FMCG sector with very strong fundamentals and debt-free can consider to invest money and with long term investment vision..
  2. Healthcare sector: Whether it is recession or any, it is not going to affect these sector manufacturing essential products for public health. Investing in good stocks from these industries would be a good idea.
  3. Consumer retail or cost-conscious retail: Another sector capable to beat the recession because, it provides low cost essential items to the general public,
  4. Utility companies: Utilities such as power, gas, water, telephony such are an unavoidable part of our life. Companies in these sectors are capable to survive recession thus.

Investments During a Recession – Best investment products

Here is a list of investment instruments that investors can prefer to invest. Those who are looking for great capital protection and a comfortable investment growth can prefer the below investments during a recession:

These investments is to be done on the focus of:

  1. Getting a fixed income
  2. Maximize long term investment returns
  3. Minimize the investment risks
  4. If wiling to invest in stocks, prefer large cap companies that do not have any debts.

However, investing during a recession and on any of the above products, one must consider the personal goals.

Best investments during a recession

  1. Consider investing in real estate. This could later increase your investment value to a great extend. Also, take the benefits from the cheap price of real estate during the recession.
  2. Precious metals: Purchase precious metals such as gold, considering the demand of these kinds of commodities often increases during a recession.
  3. Exchange Traded Funds: ETF are the best option to invest systematically during a recession with a focus of longtime investment returns and minimum risks.
  4. Low cost index funds: Index fund especially having low investment costs are the best investment to part your money for a steady growth in the future.
  5. Secure Mutual funds: Mutual fund that give guaranteed returns by investing in the major parts of its assets to the guaranteed products such as government papers, bonds, debt instruments, can be considered as an investment during the recession to get decent income.
  6. High-yield bonds: Investors can prefer investing into high yield bonds such as well rated corporate, government bonds to get a fixed return during the recession.
  7. Cash/Deposit accounts: Returns from these kind of investments are comparatively low but this investments are free from market risks. It is a best option for retirees and conservative investors have low risk taking capaity.

Investment mistakes to avoid during recession

Ensure you are not committing below investment mistakes during a recession:

  1. Do not invest in cheap, penny stocks
  2. Do not engaged to trade stocks
  3. Do not sell the best stocks because of panic
  4. Do not prefer short term investments. Instead, prefer long term.
  5. Do not try to time the market during recession

Conclusion

There is only one option to protect investments from recession is, diversify your investment portfolio very well by adding the best stocks and other investment products that are safe but give better profits. I will soon post an article on how do you protect your portfolio from a recession.