Investing During a Recession: How Things Change


During times of lush economic growth, investing is easy and comfortable. It’s tempting to feel as if everything you touch turns to gold. But during times of decline, it’s much harder to find good investment opportunities. Do you know what to do?

How to Invest in a Recession

A recession is a period of economic decline that lasts for at least six months – i.e. two consecutive fiscal quarters. During a recession, you’ll typically see a drop in real GDP, employment, income, manufacturing, and retail sales. In most cases, negative precursors like these brew for many months prior to the official start of a recession.

Recessions are actually quite common and normal – though most aren’t nearly as extreme as the one we experienced from 2007-2009. Between 1854 and 2009, there were 33 business cycles in the United States. The average length of a growing economy (expansion) is 38.7 months. The average length of a recessionary economy is 17.5 months. On average, a full business cycle – expansion and recession – generally lasts for 4.7 years. 

No economic boom lasts forever and the raw numbers tell us we’re long overdue for a recession. It might be this year, next year, or even the year after that – but a recession is coming soon and it’s imperative that you know how to handle it. 

While it’s probably not a great idea to pull all of your money out of the stock market during a recession, it’s understandable if you don’t feel like adding to your mutual funds or retirement accounts. Instead, you may think about using some of these investment vehicles and strategies: 


  • Real Estate


Real estate drops in value during a recession, which scares many people away. But don’t let this initial knee-jerk reaction scare you off. At a very elementary level, we all understand that it’s better to buy real estate at a low price than a high price. A recession provides the perfect opportunity to buy low and sell high. Plus, if you’re buying rental properties, you can rest assured that the number of renters goes up during a recession (while the number of homeowners goes down).


  • Bonds


Bonds are extremely boring and conservative investment vehicles – but that’s exactly what you want in the middle of a recession. You won’t get rich off of U.S. Treasury Bonds, but you also won’t lose money. Bonds tend to be the best and most predictable assets in recessionary environments and will give greater returns than all-cash positions. You can also try local municipal bonds, though they carry slightly more risk. 


  • Futures


Most people never take the time to learn how to trade futures – and this is a big mistake. With futures, you can trade in any market and still make money. If you think prices are going up, you buy options. If you think prices are going down, you sell options. And with the right investing strategy, someone else’s loss becomes your gain.

The beauty of trading futures is that your investment capital goes much further than it would in a normal investment. However, you have to be careful not to become too overleveraged. Putting in stops is the perfect way to limit risk and maximize gains. 


  • Dividend Aristocrats


Dividend stocks can provide an awesome source of truly passive income to those who have the financial flexibility to pour money into these vehicles. The problem is that dividends aren’t immune to a recession. Many will drop in value and/or cease to produce the dividend payments that are expected. But there is a way to get more out of dividend stocks during a down period in the economy.

For best results, try investing in dividend aristocrats – companies that have increased their dividend payouts for at least 25 consecutive years. In other words, these are stocks that have continued to increase their dividends during every recession over the last quarter century – including 2007-2009.  

Is a Recession on the Way?

After a few months of an up and down market, sputtering global trade, and other troubling signs, experts believe that an American recession is inevitable. In fact, many are calling for a global recession, which could wreak havoc on multiple countries – including a few of the biggest economies in the world.

After a decade of expansion, financial experts believe that a recession is looming. They point to escalations in the US-China tariff war, slowing US growth, an extended recession in Germany, a growing Chinese debt crisis, uncertainty surrounding Brexit, financial market jitters, and a string of countries – like Argentina, Turkey, Iran, South Africa, and Venezuela –suffering varying levels of contraction. 

Though it’s just speculation at this point, the labor pains are getting stronger and stronger. By preparing your investment strategy now, you can lessen your chances of being seriously impacted when a recession does strike. 


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