We often get carried away by emotions regarding the stock market. The market is making remarkable gains so are your investments. Life couldn’t be better. But those who have been on the field for a long time know how unpredictable the market can be. Even when we predict the future course of the market, we can never be sure whether we will be able to deal with it the way we planned. When a recession hits, everything in your investment kitty gets jolted. You may end up creating a mess out of it if you aren’t on your toes.
The 2009 Great Recession is a lesson for a lifetime. One cannot underestimate the impact of economic decline, the impact of one event in the far west, and the investment mistakes we might have made during that time. It is true that a recession is followed by recovery, and the stock market might as well experience a solid comeback. But, the impact left behind during the recession can be devastating unless controlled and managed through strategically driven decisions.
Today, our focus is to identify those strategies that can help you fight off the recession. I have listed five pointers for you to keep in mind.
- Look for sectors that persevereA recession can compel you to sell your stocks to avoid losses. True, most sectors get hit during the recession, but not all. Generally, there are certain sectors that continue to ward off negative impacts and rise on the charts. These sectors include healthcare and utilities. For instance, no matter how much the purse has been emptied, people will buy electricity to keep the lights in their homes.
Similarly, healthcare is an inseparable part of our civilization. We will visit hospitals because health must be maintained. It is quite likely that stocks in these sectors are going strong during the recession.
- Real estate is an opportunity There are so many things one can do with real estate investment. But real estate properties are costly. During a recession, however, the market suffers too. The value of the properties plummets, gives you the golden opportunity to purchase them. These properties can be used in the future for commercial or rental purposes.
Of course, you will have to wait for the market to rebound. But, once it does, you can establish a steady flow of income from the property. If you want a one-time handsome sum, sell it at a profit after the market recovers.
- Dividend Stocks Are SpecialNot everyone sells stocks during a recession. Many decide to hold on to the stocks and take a chance. If you plan to do that, you should change your strategy a little in case you haven’t. Large-cap companies with excellent financial report cards must be invested in. These companies fare well during tough times, can absorb losses for the most part, and even pay out dividends in most cases.
Ensure you have a portfolio of stocks of such companies that pay dividends. These dividends will form a regular source of passive income during the recession. Of course, these stocks will be subject to the blues of the market, but you will have a better padding effect on your interests.
- Dollar-Cost AverageThe news of an impending recession will cause a period of frenzy sell-off. But, there is a way to turn this to your advantage. Adopt the dollar-cost averaging method of investing during the phase.
When the market declines, you should adopt this strategy to increase your contribution to different stocks. You can buy more shares as the prices drop and the overall cost basis continues to drop. When there is a rebound, your investment will buy fewer shares, but the current share price remains higher than the cost basis.
- Don’t overreact This last piece of advice has nothing to do with stock market investment techniques. Rather, it is a suggestion for regulating your state of mind, which is equally determinative of your decisions during a recession. Yes, the losses are real; you will feel them in your gut and bank accounts. But, there is always recovery following a recession.
The recession can be tackled intelligently, provided you think from the head, not the heart. Emotionally-laden decisions will cost you more than you could. Would you want that?
Have you read?
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10 Ways to Make the Most of Your Time by Hemi Hossain.
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