Best Ways to Put Money in a Recession

Recession is one of the phases of the economic/business cycle . As well as economic boom , business cycle involves the phase of recession. This usually cause investors the worst distress. Recession do have effects on financial sector and its related markets. Fortunately, measures are possible to help cut down investment losses. These measures also help record profit during economic downturn. Several investment opportunities perform much better than many others in recession.

A Little About Recession

A recession is a prolonged period of substantial economic downturn. In general, economists define recession as a period where negative Gross Domestic Product (GDP) growth occurs. This must be for two successive quarters in an economy.

Recessions are being characterized by declining businesses and consumers trust. Others are increasing unemployment , decreasing real income and decreasing demand and productivity . Recessions causes increased risk avoidance on the part of investors.

Though on the other end, recessions eventually collapse to recoveries. However, economic structure moves in a cyclical manner. This implies that there's always a potential recession. It is prudent to always prepare for its possible occurrence even if it is still far off. Do not panic! All you should do is to keep in mind is that during downturns, certain investments will function well. What you should try and know are those investments.



Best Investments during recessions

Below are several investment opportunities which could be suitable during recessions.

Precious Metals

 Precious Metals
Precious Metals

Investing in assets other than the traditional financial assets is an essential action. Precious metals can provide security from various economic instability. Examples are silver, Gold, Platinum. During economic crashes precious metals generally perform excellently. During recession, the price of these metals also rises. This is because their demand also rises. As demand for such metals also rises during recessions, their prices usually rise, too.

All hard resources are differently created. They do not have the same value and worth. Some are weakly correlated to the business cycle. They can take advantage of any bad situation of the economy. While some others are strongly correlated to economic cycles. They may have poor performance during recessions. Others are more counter-cyclical and can take advantage of a poor economy. Gold is a precious metal that is universally known for holding value for money. It has a history of serving as wealth.

According to history, Silver is a means of exchange. In bad economic conditions, silver could be a better asset to keep. This is in comparison to most industrial metals. Generally, silver perform poorly than gold. This occurs especially when poor economic situations lead to declining demand by industries. Palladium and Platinum are also precious metals. They do not have any confirmed history of serving as means of exchange. They are in most times negatively affected by recession. In six of previous seven recessions, prices of platinum fell drastically. Around 2014, platinum traded at a relatively large discount against gold. It was being assumed that difference might gradually close. That closure may be such that Platinum may gain a significant premium above gold.

A Look into Silver and Gold's Reaction in Recession

Silver

Year

1981

1982

1990

1991

2001

2007

2008

2009

Average Closing Price

$7.92

$10.49

$4.83

$4.06

$4.37

$13.38

$14.99

$14.67

% Change

33.37%

-47.42%

-19.73%

-7.88%

-1.31%

14.42%

-26.90%

57.46%

Gold

Year

1981

1982

1990

1991

2001

2007

2008

2009

Average Closing Price

$459.16

$376.11

$383.73

$362.34

$271.19

$696.43

$872.37

$973.66

% Change

-32.15%

12.00%

-2.49%

-9.62%

1.41%

31.59%

3.41%

27.63%


S&P 500 in Relation to Gold and Silver

The S&P 500 is among the best systems to track a sector during recession. It gives a perfect illustration of the performance of firms in various sectors. The findings from 4 separate recessions are-

PERIOD

S&P 500

GOLD

SILVER

1980-1982

-27.1%

-46.0%

-66.6%

1990

-19-9%

6.8%

-10.8%

2000-2002

-49.0%

12.4%

-14.4%

2007-2009

-56.8%

25.5%

1.1%

Interpretation

Gold's value is always greatly increased. Keeping gold in recession periods seem like a wise idea. According to history, at the beginning of a recession, gold's value often goes down. It is known to regain its value during the recession. When stock-exchange wrecks, gold becomes robust. The major reason gold is still more robust is because of its negative correlation. One rises as the other falls. When the stock exchange declines, people's fear usually goes up. Most investors seek safety by keeping their wealth in gold.



When stock-exchange collapses, Silver does not always seem to fare well. A decline in industrial output most likely always lead to a decline in silver's demand. This thereby affects its price.


Invest in Yourself

Invest in Yourself
Invest in Yourself

During a recession, if you happen to get laid off, take up the courage and invest in your personal self. This will help you recover and also improve yourself. You may enroll to a school to learn new skills or information or a higher qualification. This could enable you secure a better job.

Saving for retirement and paying off debts are good. They help prevent or reduce tension when economic recession occurs. In a recession, the lesser the funds you need for bills and debts, the less depressed you will be.

Government Securities

 Government Securities
Government Securities

The federal, state and local governments offer investors some types of fixed-income portfolios. These are being used to fund their activities. These are Treasury notes, Municipal bonds, Treasury bonds and Treasury bills. Also, they all have one related feature. It is their integrity. This is being instituted on the credibility of the Governments of the United States. Investors do expect a greater form of protection from these securities. They also expect a stable but unexceptional gain. In terms of credit quality, government securities are risk free. This is because they are being backed by the absolute confidence and trust in the us. Treasury. Holders are not exposed to interest rate risk. This is because of the ability of the government in levying taxes and printing currency. These reduce the possibility of default and offers essential security.

These investments vary based on maturity. These include the very short-term Bills to the longer-term bonds. Interests are being paid annually, like every other security. When the maturity lapses, the face sum of the asset is repaid. These securities may be bought from Treasury offices via frequent auctions. They can also be acquired through the secondary market. There also exists various mutual funds that are invested in various government securities.

Defensive Stocks

As any recession approaches or occurs, people are always tempted to quit stocks. According to analysts, it is not so good to run away from all equities. In recession, the majority of the economic sectors are feeling negative impacts. Some economic sectors do not always follow the trend. Those sectors tend to deliver reliable dividends to shareholders. These are referred to as defensive stocks. Defensive stocks are stocks whose investment returns and dividends continue to become more sustainable when an economy faces recession. Defensive stocks are stocks of such businesses whose output (goods and services) are required. This occurs irrespective of the economic situation. Therefore, their stocks continue to do better during crisis. There stocks tend to perform poorly during economic booms. These include-



Consumer Staples

Consumer goods have always been one of the best sectors on the stock market to put your money in recession. This is being analysed based on history. These are items which are used daily by individuals. These are goods that people cannot stop buying. People buy them irrespective of their personal financial status or the economic circumstances. These products are bought continuously at standardized rates. This is regardless of how booming or bad the American economy performs. Examples are food, laundry soap, toothpaste and beer. Others are cigarettes, coffee, paper towels and items for female care. Though, these firms usually perform poorly during booms in stock-market. During economic crises, they tend to display greater value. Examples are stocks of Procter & Gamble (PG), Vanguard's Consumer Staples.

Stocks of Utility Companies

Utilities are somehow prone to market volatility. It is a good sector for prudent investors to pursue some great number of stocks during recession. There are few companies in this sector. Investors should take this advantage to include its stocks in their investment portfolio. The utility company can adjust over time to buy their stock as any recession approaches. You may need to investigate or consult with your financial advisor. This will enlighten you about the best utility stocks to keep. It may be at the time any recession is approaching or during a recession. Examples are Gold Bullion, NextEra Energy Inc., and Duke Energy Corp. Others are American Electric Power Co Inc., Dominion Energy Inc., the Southern Co.

Health Care Sector

During an economic meltdown, health care is also a good sector to invest your money. In a recession, people don't quit utilizing healthcare sector entirely. This is so for many other protective sectors. So, it's less sensitive to macroeconomic problems. Examples are pharmaceutical firms, and hospitals.

Real Estate

During most of recessions, real estate can be a good asset to acquire. Investing in real estate properties can be a good investment decision. This is very good especially when recession occurs and real estate prices collapse. You can rent it to a good client. It will generate reliable and stable income while you wait for the recession to fade off. You may sell the property off when prices of real estate improve to your desired profit level.

Stocks of reputable companies

Putting money in some stocks is also a good way to earn passive revenue. It will also help safeguard your money during recession. Firms with a long-term strong balance sheets and low ratio of debt-to-equity is a great option. This is as stated by finance experts, You may need to consult your finance advisor. You will need to know about these companies in preparation of future circumstances. These are companies with good records of dividends. They are those firms that have raised dividends/ investment returns. This must be for the least consecutive period of 25 years.

With all that has been said, you need to know that diversifying your portfolio is often the best option. Putting all your investment funds into only one sector can be very risky. Diversification is especially necessary in periods of recession. This is because any particular company, sector or industry is prone to loss. Ensure to diversify your portfolio over various classes of asset. Diversification can also serve as a portfolio loss check.



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