At the risk of stating the obvious, COVID-19 has changed everything, from healthcare advancements to a technological takeover. At one point, a post-pandemic world felt like a pipedream, with people adjusting to the new normal. Eventually, vaccines were made, and slowly and gradually the world started to adjust back, until the recession.
With stocks falling into a bear market this year, and aggressive hikes from the federal reserves, the economy has taken a huge plunge. Companies are shutting down or reducing their workforce, individuals are filing for bankruptcy, and some countries are in debt. So, the global economy is in shambles. So, it’s the perfect time to tighten our belts and invest in our future.
The question that remains is ‘how?’
Saving Disintegrating Value of Money
Recessions not only involve poor economic growth but several other characteristics as well. We mentioned a few of them in the earlier discussion, like job losses, fewer opportunities, companies shutting down, among others. Logic might indicate that investing is a smart idea during a crisis. After all, the value of money would disintegrate with time. But during a recession, stock values decline, making them disadvantageous for your existing portfolio. So, research is important if you’re looking for options to invest in.
Further, as an investor, you must study the previous recession. Every recession has been followed by recovery, but the recovery hasn’t been too massive. But it can be worth considering.
What to Consider When Investing During a Recession
Investing during a recession can be a strategically wise move, especially during the present economic turmoil. But experts suggest to consider a few circumstances so that you don’t concur losses that can further weaken your financial position. Below mentioned are the elements that you must keep in mind.
- Plenty of Savings in Your Account: Firstly, you must have enough money to bear 3 to 5 months of living expenses, with the latter range being more ideal. Experts suggest investing can be great if you have this kind of money as a backup.
- Don’t Look at your Portfolio: Usually, when the economy is in bad shape, with lots of stock market movement, you might in persuaded to check your brokerage account regularly. But stop yourself because you might panic, and you can make rash decisions. So, when you have invested in the market, forget about it until everything returns to normal.
- Take the Long-Term Route: Investing during a recession can be a huge gamble, not for those who can tolerate ups and downs. Buying stocks at a lowered price may seem like a smart move, but seeing your portfolio’s value decline in just a few days can be challenging. So, if you’re investing during a crisis like a recession, ensure you’re in for the long haul.
What Investors Should Look Out For
Apart from carefully examining the global economic scenario, you should also keep tabs on the rising interest rates. Brad McMillan, the CIO for Commonwealth Financial Network, claims rising interest rates did provide a tailwind for stock values; it also has shown us the positives for growth of stocks. For instance, some growth sectors like consumer discretionary and technology can potentially generate good revenue in the future. So, keep your eyes on them.
Summing Up
Although recessions have been declared a global crisis every time, the current recession offers few investment opportunities. With technology at the pinnacle of its powers, this recession could possibly catapult us to a better economic future. But as investors, you need to analyze your financial condition before you invest.