As interest rates rise and it becomes costlier to borrow money, all signs point toward a slowing economy, if not a recession in the near future. Adjusting your portfolio to adapt to a changing market may help you ride out the storm and come out in a stronger position when the economy gets back to growth.
There’s no way for investors to reliably time a recession. Trying to game the market can end with disastrous results if you’re wrong, but investors can make adjustments to their portfolio and diversify into assets that have historically performed better during tumultuous times.
Should You Invest During a Recession?
Investors are under a lot of pressure. Inflation is eating their savings while the market doesn’t offer any answers. Before you decide to invest during a recession at all, you should ask yourself these questions:
- Do you have enough money in the bank to cover six months’ expenses? A robust emergency fund is more important than ever in a recession, as you may be at a higher risk of getting laid off and losing your income.
- Will you need the money you’re going to invest in the next five years? What about ten? Investing in a recession can be extremely volatile, and you may see losses before you see gains. If you can give yourself time for markets to recover, you’re more likely to gain in the long run.
If you’re still committed to investing during a recession, these are some of the assets that can help you diversify your portfolio.
When markets are volatile, it can be difficult to find a stabilizing asset where you can protect the purchasing power of your investments. Gold historically has a low correlation with the stock market. Its prices are affected by other factors, such as investor sentiment and demand in the commodities market.
Gold is also simple to buy. Generally, the most cost-effective way to invest in gold is to check out bullion dealers in your area and purchase it in the form of bars or coins. You can store them in a home safe or use storage with a bank or third party.
#2 Real Estate
Despite rising interest rates, real estate could be a good alternative to investing in stocks. Real estate can be an income-generating asset, which means you don’t necessarily need it to appreciate in value during a recession.
Beware that not all real estate is made equally. In some overheated markets, prices are already droppingin the wake of high interest rates. Suburban and exurban properties have been buoyed by buyers forced out of the core, and their prices are falling quickly as buyers get out of the market and decide to wait.
Meanwhile, high-demand urban cores continue to see strong prices. This gives you options. You can pay top dollar for a more resilient asset or take advantage of discounted prices in harder-hit markets.
#3 Stable Stocks
While it may be tempting to avoid the stock market altogether during a recession, it means you can miss out on the recovery. As an alternative, you may want to look into companies that have strong balance sheets and low debt, as well as recession-resistant industries.
Recession-resistant industries tend to include consumer staples such as grocery brands, discount stores, and businesses that may see a surge in demand as consumers cut back on luxury spending.