Recession is a crisis for the investor. The wise saying goes, every crisis is an opportunity. During normal times, when the going is good, investors take many things for granted. Recession makes one to think afresh, evolve new strategies, for no investor would like to accept defeat. During recession, one is interested in converting defeats into victories. Pessimistic view into optimistic outlook! Making money during the downtrend is part of the investing strategies, and one need not fear recession unduly. Economic effects related to the market trends are one thing; your investment goals are a separate issue. Think carefully, plan intelligently and pull your finances together. How this can be done?
- Create a reserve fund. The chances of lay-off during recession are real, if you are employed. Set aside some cash from your existing earnings and make it your emergency fund. Normally, it should be equivalent to your six month’s salary/domestic budget. Keep the amount in a savings bank account. Even if it is fixed deposit account, perfect, because you can always avail loan up to 75% of the deposit, before the maturity date.
- Investment in stocks. Howsoever powerful and big may be the waves of the ocean, their essential nature is mere water! However strong is the recession, the market is bound to revert to its level and recoup its original health. This is the unchallenged history of the stock market. If you have surplus funds, recession is the best time to intelligently invest. Most of the stock prices, even those of blue-chip companies, are passing through a low phase. Be a long time investor and grab the opportunity to create an imaginative portfolio. This is the real chance for the windfall, when the downtrend turns to uptrend.
- Utility stocks. Some stocks have the intrinsic capacity to withstand any types of recession, without being affected much. Companies manufacturing consumer durable and articles of daily use, will continue with their production. Their services are needed by an average family, because they are the needs that you cannot avoid. Utility companies also are good dividend pay masters. When your finances are tight during recession, this dividend amount will be handy to meet the day to day expenses.
Real Estate Investments
Real estate must take the blow of recession, sometimes the severe one. Real estate becomes the buyer’s market during recession and all that the builder wants is hard cash. Otherwise, his interest liabilities mount, as builders mostly resort to bank finance and borrow money at high rates of interest from the market. Not all types of real estate offers are good. Select the best one for you through which you will be able to get good rental income. The strategy during recession is to generate as much cash as is possible from your real estate investments and not look forward to appreciation in the value of the property. This increase is not going to solve your current need of cash.
Recession or no recession, risk taking is necessary in stock trading, and recession is the ideal time to take risks. This is the opportunity for a value investor. Spend some time for research, take note how far the present price of a share is farthest from its 52 week high and strike a bargain. Note three important points about the companies that you have decided to invest during recession. Good earnings, steady growth and low debt. The last factor is an important one that informs the state of health of a company. Carry on with the game plan and think what will happen during the course of the next 5 to 10 years. Do not invest the entire amount in one lot and buy in small lots, but take care of the time element. You may miss the market trend and the right time to invest.
Recession doesn’t affect all the segments of the industry. Some pockets will show the upward trend even during recession. This is the best time for the investors with foresight, who are willing to take measured risks.