How to Invest with Confidence During a Recession
Key Takeaways
- 1. Invest cautiously during a recession. Make sure you invest according to your risk appetite, have sufficient savings and refrain from emotional investing.
- 2. The best investments during a recession include actively managed investment funds, non-cyclical stocks and fixed-income bonds.
- 3. Build a resilient investment portfolio by employing dollar cost averaging and diversification.
Odds of a global recession occurring are high as market volatility continues amidst inflationary pressures, geopolitical uncertainties, and a growing energy crisis. With volatility expected to persist, you might wonder if this is a good time to be investing.
All investments come with an inherent level of risk, and this is often amplified during a recessionary environment. Nonetheless, there are opportunities that can be found even during a bearish market, as well as investment strategies to hedge against inflation and other market pressures.
For instance, the one thing you should not do when investing in a recession is making emotional decisions or only think of short-term gains. The uncertainty can be unnerving, but with the right perspective and strategies in place, you can prepare for what is to come and invest with confidence.
Should you still invest during a recession?
Saving for your future is important, regardless of the economic situation. For this reason, you should still consider investing during a recession, but only if you have the finances to do so and the right perspective in place. This includes understanding your risk appetite, having emergency cash, and investing with a long-term view.
Know your risk tolerance
All investments come with risk, and it is important to know how much risk you are willing to accept. Do you have a small, moderate, or big risk appetite? Complete an Investment Risk Profile assessment on the Citi Mobile® App to discover your risk appetite and kickstart your investing journey.
Before you invest, be clear on the risks involved and learn how you can manage them to avoid losing more than you can handle. With the Citi Wealth Analysis Dashboard on the Citi Mobile® App, you can view, manage, and access insights on your wealth portfolio and stay on top of your investments.
Have an emergency fund
It is always a good idea to hold onto some cash in a recession, in case of reduced income or unemployment. Investing in a recession can also be rocky, but a healthy cash reserve helps to cushion potential falls. The general rule of thumb is to have at least 6 to 9 months of your expenses in cash savings, or more if you are a retiree.
Invest rationally
Emotional investing based on hype and fear is more common than you think. This often leads to badly timed decisions, such as panic selling in a falling market. To avoid this, remember that investing is a long-term game.
Due to the time value of money and compounding, you have a higher likelihood of achieving success when you hold onto your investments for a longer period, or at least until the market recovers.
Stay on track with dollar-cost averaging (DCA)
When investing in a recession, adopting dollar-cost averaging as a strategy can help you avoid ill-timed investments due to emotional investing. This involves putting an equal amount of money into your investments at regular intervals, across both good and bad times, to reduce your exposure to market risk.
A recession can also be a great opportunity to pick-up high-quality shares at discounted prices, which boosts the value of your portfolio in the long run after the market has recovered.
What should you invest in during a recession?
Smart investing during a recession is all about investing in the right assets. While guaranteed recession proof stocks or recession proof investments do not exist, certain types of securities tend to be more resilient or outperforms others during a downturn.
Some of the investments you may wish to consider during a financial crisis includes:
1. Actively managed funds
Investing in funds is usually less risky than investing in individual stocks. This is because you are exposed to a basket of securities rather than relying on the performance of a single company. For this reason, investing in actively managed investment funds can bring about more stable returns as compared to stock-picking.
2. Defensive stocks, or non-cyclical stocks
Looking for stocks to buy in a recession? First you must know which industries are relatively recession resistant. Industries that do well in a recession usually include utilities, healthcare, communication services and consumer staples such as food and beverage, household, and personal products.
Known as non-cyclical stocks, companies in these industries face continuous if not increased demand even during economic uncertainties. When selecting stocks to buy in a recession, consider companies with strong balance sheets, good cash flow, a solid business model and potential for long-term investment value. These, along with other opportunities in the Singapore, US and Hong Kong markets, can be traded with Citibank Brokerage.
3.Bonds
Fixed income securities such as bonds may not offer the same level of returns as stocks, but they are a safer alternative that provide a steady and predictable source of income. They can also be a welcome option for investors who are focused on building a defensive portfolio with income generation.
Build a recession proof investment portfolio
Diversification is key when investing in a recession. Rather than investing solely in resilient stocks, invest across asset classes from investment funds and defensive stocks with potentially higher returns to bonds that provide predictable yields.
This increases the resilience of your portfolio and helps you manage your risks better, as losses in some investments are offset by gains in others. Besides diversifying, you should also review your investment portfolio regularly to ensure that it is aligned with your investment objectives.
Planning your wealth goals? Whether it is to hedge against inflation or save for retirement, your dedicated Citigold Relationship Manager puts you and your needs at the core. Your Relationship Manager will have an in-depth conversation to understand your current financial position, goals and needs, to determine the suitable investment portfolio for you. Find out more today.
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