A dip in the market can also cause investors to panic, as they try to protect their assets from making a loss – but there are ways that we can protect these investments during a recession, by utilizing investment insights, diversifying, and spreading the risk. Read on to find out more.
What happens in a recession?
A recession happens when a country’s economic performance decreases for a lengthy amount of time, usually over a few months. This can be marked by an overall contraction in a country’s economy, as people spend less and save more, and can also be indicated by the higher levels of unemployment. A recession can happen when prices skyrocket due to inflation, and because items are more expensive, people are less inclined to spend their money. But it’s not consumers that are affected by this – it becomes more difficult for businesses of all sizes to stay afloat and can leave many in financial difficulty. A recession may impact you with an increase in the cost of living, job loss, or difficulty finding a new job if unemployment occurs.
How can you protect your assets?
Your assets are likely to be impacted by a recession, whether that’s your savings or your investments. If you have money invested in a portfolio, you may be worried that a recession means your funds are going to take a hit – below, we’ll look at ways that you can protect your investments so you can minimize loss.
Spread risk
As you will know, every investment comes with a level of risk, and sometimes, the riskier you are, the more likely it is to pay off, but when it comes to dealing with a recession, being sensible will help when it comes to protecting your finances. Within your portfolio, it is worth choosing to invest in stocks or companies that offer varying levels of risk. This means that you can protect yourself from making a loss on all fronts. You should choose investments that you know are likely to survive a downturn – this way you are less likely to feel as much of an impact as you would if you solely invested in high-risk stocks.
Choose wisely
Investing in shares means that you’re going to need to be aware of whether a firm can manage an economic downturn. Choosing your investments wisely means you should look at business models and balance sheets, and this can give you some idea of how stable these companies are. Look for companies that will prosper even during a recession, like supermarkets that people can do without. Choosing to invest in stocks that will prosper no matter what can put you in a better position to handle harsh economic times.
Cheap stocks
Like most products during an economic downturn, stocks will also reduce in price, so if you are an experienced investor, you may be able to take this time to look for companies that are said to be going to prosper in the future, so you can take advantage of the low price. If you are new to investing, this could still be quite a risk, because, after all, no one can reliably predict what is going to happen within the market!
Be patient
You might think that protecting your assets during an economic downturn means you should take all your money out of your investments or sell them to reduce the risk of making a loss – however, this could land you in a worse position than you were in beforehand! Try not to panic – just because there is a recession now, that doesn’t mean the economy will never recover. Build a portfolio that can handle the volatility of the market and focus on long-term gain rather than the short term. There are always going to be bumps along the way, but the market will recover.
