How to Change Your Investment Strategy During a Recession

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In the wake of an oil crisis and the spread of COVID-19 worldwide, the stock market has taken a beating. Most investors are acutely aware of the economic consequences of these events, and suspect that we could be dealing with a full-blown recession over the next few years. Contrasted with the longest bull market in history, which is now officially over, this is scary news.

However, if you’re a savvy investor, this is the perfect opportunity to change up your strategy—and hopefully, make more money in the process.

Identify Your Goals and Risk Tolerance

If you believe the market is going to be volatile, or trending negative in the coming months and years, it’s a good opportunity to identify your goals, your future projections, and your overall risk tolerance. How soon are you planning to retire? If your retirement date is 30 years away or longer, a short-term recession isn’t going to affect you much. If you were planning to retire next year, you may need to change up your plans.

Similarly, you’ll need to think about how much risk you can tolerate. If you’re young, with an aggressive investment style, you can use the recession as an opportunity to make savvy plays on small companies and up-and-comers. If you’re older, with a more conservative investment style, this is a good chance to hedge your bets with safer holdings.

Get Involved in a Mix of Assets

Stocks are one of the most common investment assets, due to their accessibility and reputation for high returns. But in a bear market, it’s much tougher to make money on your investment with stocks. Instead, it may be time to turn your attention to other assets.

For example, you could use this time to get your real estate license online; with a real estate license, you’ll get access to deals sooner and more plentifully than other property investors. From there, you can purchase low-cost properties to turn into rental units, or to flip for an immediate profit. Currently, the housing market is remaining stable; keep watch for prices in your area to determine the feasibility of a local property investment strategy.

You could also jump into safer investments with a lower return, like bonds or even CDs. These assets aren’t as sexy as stocks or property investments, but they’re easy to understand and they’re relatively secure. These are ideal plays if you’re looking to lower your risk profile significantly.

No matter what, you should be thinking about diversifying your portfolio. If you go “all in” to one asset or investment type, it could devastate you.

Pay Attention to Opportunistic Plays

If you’re still interested in investing in stocks, there should be plenty of opportunistic plays for you, including industries that thrive during a recession. Consider investing in companies or industries that will continue to be necessary—or may even benefit from increased demand—during trying economic times.

For example, the utility sector is somewhat unaffected by economic downturns, at least when compared to other industries like luxury retail. We may also see a rise in earnings for discount stores and other sources of inexpensive goods.

As always, when making investments like these, your best bet is to do your due diligence. Your instincts, hunches, and advice from friends might lead you in a good direction, but it’s still important to do extra research on your own to understand fully what you’re getting into.

Get Access to More Cash

Finally, do what you can to get access to more cash. Historically, the stock market has always bounced back from economic downturns, reaching new heights in the process—even if that process takes a few years. Working an extra side hustle or socking away more money from your current position can help you take advantage of these lower prices.

If you’re concerned that the market will continue to sink before it begins to turn around, you can employ a dollar cost averaging strategy. The idea is to invest your extra money a little bit at a time as a way to shield yourself from the peaks and valleys of volatile changes. Over time, the cost of your investments will average out, so you never lose too much from a single investment decision.

There’s no single “right” way to handle an economic recession, and it’s never possible to predict when a recession will end (or how extreme it will be in the meantime). You’ll need to think for yourself, evaluate your own risk tolerance and goals, and come up with a strategy that fits your situation, your investment style, and your future needs. Think critically rather than relying exclusively on the advice of others, and when in doubt, err on the side of lower risk.