Many economists, wealthy businessmen and investors can see the signs of an economic collapse. These signals are making investors re-evaluate their portfolio to ensure they’re ahead of the game. In this article, we’ll share our tips for smart investing during a recession so your wealth is managed and protected for any market condition.
Historically, inflation, booming markets, easy money printing, borrowing and credit, civil unrest, decline in public trust of government, etc. have commonly escalated to a recession.
When borrowing becomes easy, markets boom. But soon enough when markets reach its peak, there’ll have to be correction due to supply and demand. Lending gets tightened and interest rates rise causing a lot of people to default on their debts.
Why am I saying this? If you’re not anticipating for a major market correction, your investments could be in for a shock. Which is why preparing your strategy now is critical, before it’s too late.
THE THREE (3) KEY HIGHLIGHTS:
– Nothing is new under the sun. Market trends are always repeating and to capitalise on the opportunity in recessions, it’s about recognising the cycle we’re in and heading into.
– Have a clear investment and defensive / back-up strategy. The global markets aren’t black or white. Rather, it’s a painting of emotions. My tip for smart investing during recession is to find the strategy suited to you.
– Remain objective and unattached to the outcome. Emotional decisions can often cost you big time if you can’t adjust to the conditions as anything can happen in the markets. Therefore, systems, risk and money management is critical.
Smart Investing During Recession Tip 1: Follow the Market Trends
Nothing is new under the sun. The global markets, movement and transition of money is always repeating and following historical cycles.
We can distinguish trends into 3 main categories.
1) Direction or future of the world
To invest successfully during a recession, the key is to recognise the immediate cycle we’re in and heading into. It’s easy to look back in hindsight but a good example is the transition from the industrial to information revolution 2-3 decades ago.
If you were attached to the old system, you would’ve lost a ton of money having investments in companies who weren’t adjusting to the internet movement.
Conversely, if you had invested in the likes of Uber, Netflix, Apple or Amazon that would be another story.
But again I emphasise, it’s the beauty of hindsight. The point is follow the global trends.
If your own research suggests the world is heading towards a technology, AI or energy revolution, those are the kind of stocks or investments you’d want to evaluate.
2) General consensus of everyday people
Data from polls can provide valuable insight on the overall feel of the market.
From our own research and opinion, as a simple example, statistics show public trust in government is near all-time low. The bottom line is citizens are not trusting their government to do what’s right anymore.
Therefore, we may decide to use this information to be cautious of government or treasury bonds during a recession.
Or if, for example, consumers are looking towards online shopping or orders, as we saw in March 2020 and onwards, this too can indicate potential opportunities to look into.
3) Flow of money into the market from the elite
Throughout economic recessions, the poor become poorer, the wealthy become wealthier, and the middle class dissolve.
This is always the case because the wealthy prepare and can spot the opportunity, low buy-in prices for strong companies and recognise where the money is flowing into. The Great Depression created more millionaires than any other time period.
Economists are now predicting we’ll witness an even greater wealth transfer as we enter the great reset.
Instead of following the everyday person who makes the decisions from greed or fear, notice where the money is flowing into from large corporations or big independent investors and leverage off of the best.
Smart Investing During Recession Tip 2: Have a Clear Strategy in Your Investing or Trading
The most important component of smart investing during a recession is to have a clear strategy, and not merely speculating. Additionally, to establish a back-up plan if things take a turn.
Derek Whitaker, who has recorded an introduction to trading in the stock market for the Global Wealth Club, teaches his students the philosophy that whenever you enter the market you can’t have a preconceived idea. Rather, when you place the trade, anything could happen.
The stock, crypto, Forex or other global markets isn’t black and white. It’s a painting of emotions. Which means you want to be prepared for whatever possibility there is – down, sideways or upside trends.
Before investing, think about your strategy.
What’s the best investment strategy?
The best strategy is subjective and depends on multiple factors including your personality type, risk tolerance, investing timeframes, net worth and such. There are investors who prefer the long term play … namely Warren Buffett, Harry Browne, Ray Dalio and others.
By contrast, other investors prefer shorter term trades, playing a directional game, and leverage a large sum of money on a one-way market movement. George Soros is regarded as one of the elite investors who uses this philosophy.
Read one of George Soros’ famous single-day gain of $1 billion on a market crash prediction.
Another common strategy one may consider is dollar-cost averaging, which is in essence an investment strategy where an investor divides the investment sum across multiple purchases to reduce the impact of volatility.
DOLLAR-COST AVERAGE EXAMPLE:
If the amount I wished to invest was $10,000, I could spread this across 20 weekly investments of $500.
Broken down simply:
One week, Bitcoin could be worth $50,000 USD
The next week it may drop to $40,000 USD
By dollar-cost averaging across the 2 weeks of an even purchase for each transaction means the average entry point is $45,000 USD.
This effectively limits the impact of volatility.
There are other investment strategies one may consider but the above 3 are very common ones that investors and traders use.
My point is there is no “best strategy”. There are only options.
My tip for smart investing during recession is to discover your strategy and master it. It doesn’t even have to be unique … just observe what the best investors do and copy them.
Additionally, a back-up strategy is just as, if not more, important. Always calculate your risks, what you can afford to lose and if things were to go wrong, have defensive tactics in place.
Smart Investing During Recession Tip 3: Be Proactive, Not Reactive
There are two emotions that drive the market. Greed and fear. Over 80% of investors or traders who enter the markets end up losing their money simply because they don’t understand how the game works.
Additionally, they wait until the problem has already happened before they think about taking action. That is, following on from tip 2 of smart investing during a recession, there’s no back-up plan.
Simon Black from Sovereign Man says Plan B has now become Plan A which I emphasise strongly as well.
The markets are irrational so adopting a system, strategy or philosophy that suits any economic condition is critical to success.
Part of the education we teach at the Global Wealth Club is a balanced portfolio. That is, diversifying into multiple industries, sectors and investments. This way, your wealth is spread across assets such bonds, cash, precious metals, property, cryptocurrencies to spread the risk.
(Everyone’s portfolio will look different but that’s an overview).
When recessions occur, investors generally react by selling their stocks and transferring it into precious metals as a basic example (i.e. fear controlling the decision).
If one currency crashes or inflates, hypothetically the US dollar, there’s generally another currency that rises. Which is why there’s no downside to being early.
Recently, the Russian rouble went from around 70 per US dollar a month ago to around 120 today, according to Simon Black’s Sovereign Man. Meaning, it’s become more difficult to buy foreign currency.
There’s plenty of other examples I could give such as cash in ATMs becoming less and less due to not enough reserve backing but you get the point.
Instead of reacting like everyone else, one can be proactive and have the solution before the full impact of the recession has struck.
Smart Investing During Recession Tip 4: Preserve Capital While Spotting Opportunity
The #1 rule of investing is to never lose your money. Simple but overlooked. This rule is easier said than done but nevertheless should never be forgotten.
Our mindset and approach when investing in a recession is to be vigilant and play safe but still scout the available opportunities out there in the world. Uncertainty creates volatility, and volatility creates opportunity.
Despite tough market conditions, there’s potentially lower prices to high quality companies, real estate and assets. The key to smart investing during recession is to be able to spot these opportunities.
This is achieved when you remain objective and not emotional.
The other kind of opportunities one may consider is researching into counter-cyclical investments.
What are counter-cyclical investments?
In simple terms, counter-cyclical investments are assets that outperform or even appreciate in value during economic recessions. Generally, alcohol, entertainment and possibly gold are cited as counter-cyclical investments.
When recessions hit, people will either turn to alcohol and entertainment to distract them or escape from reality while investors usually avoid speculative assets to move to “safer” options such as gold or silver.
Non-cyclical businesses also the kind of opportunities one may look into. Which are basically goods which have demand regardless of the economic stability. These are consumer staples such as food, beverages and hygiene products.
Whatever assets you seek to acquire, remember the rule. Never lose your money.
Our philosophy, as well as many smart investors, is to preserve capital as much as possible. When we invest, our goal is to get our capital back and reach a point where the everything within our portfolio is a free bet.
Thanks for reading.
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