Impending recession is often associated with bad news, like volatile markets, high unemployment rates and a generally slowing economy. Kavan Choksi Hong Kong, however, mentions that recessions may also come with a silver lining for savvy investors. After all, it makes it possible to buy investments at a discount and potentially see bigger returns down the line.
Kavan Choksi Hong Kong sheds light on the investments to consider during a recession
A recession basically is a sustained period of decline in economic activity. While declining gross domestic product (GDP) is the most common measurement of a recession, there are several other factors that may indicate that the economy is about to take a nose dive. These factors include showed consumer spending, an inverted yield curve and high unemployment. When the stock market and economy are down, it might be possible to buy into securities at a cheaper price in comparison to what one would have to invest if the market was at its peak. Basically, a recession does provide people with the opportunity to realize higher gains as the economy recovers.
Here are a few types of investments that can help one’s portfolio to weather a recession and minimize losses.
- Dividend stocks: Investing in dividend stocks is among the most efficient ways to take advantage of long-term growth among leading companies. Such stocks often tend to share profits with investors on a regular basis in the form of dividends. These dividends can be cashed out or reinvested. Only the most profitable and stable companies are likely to pay out dividends, which means that such stocks are less volatile in general. However, if one does not buy individual stocks, they may even choose to invest in a dividend fund that allows people to invest in a basket of the top-performing dividend stocks.
- ETFs: Investment funds are a popular, strategic investment option during a recession. After all, they have built-in diversification which helps in lowering volatility compared to individual stocks. The fees associated with particular types of actively managed funds, however, can be pretty expensive. On the other hand, Exchange-traded funds (ETFs) usually have lower fees compared to mutual funds as they are managed passively. Value stock ETFs are especially well-suited to fare in a volatile or down market as the companies that make up the funds generally have solid fundamentals and produce essential goods.
- Real estate: Equities are not the only investment option available to people when the market is down. When the economy is slow, real estate may prove to be pretty attractive to investors. It can become possible to invest in property at lower prices and lock in lower mortgage rates. This would ultimately translate to greater returns as the market recovers, particularly because real estate generally appreciates over time. Choosing to invest in rental properties can help diversify income streams. This can be a great move during a recession when job stability tends to weaken.
As Kavan Choksi Hong Kong mentions, recessions are an inherent aspect of the cyclical economy. While people cannot predict the exact timing of a recession, it is certain that one will eventually occur. The most effective way to prepare for a recession is to construct a portfolio capable of withstanding economic downturns before the market shifts.
