When people think about recessions, the fear of losing money in investments is a natural concern. But, creating a successful investment strategy is possible in any market, even if you’re not a super savvy investor.
For example, by including counter-cyclical stocks in your portfolio is one way to guard your portfolio against economic downturns.
These include companies that typically do well in a recession, such as dollar stores, affordable housing companies, and companies that help with bankruptcy.
While these companies are often profitable at all times, they may rise particularly high when a recession is in effect. An effective recession investment strategy has to have a place for these companies that grows as a recession intensifies.
Likewise, we often hear about the need to diversify. Diversification involves buying a wide variety of stocks so a blip in one company or sector does not completely doom the returns that an individual is expecting to make.
Recessions Are The Bane Of Investment Managers
Recessions can strike fear in investment managers and financial advisors too, and it’s not just because they have to calm panicky clients. There will also be reports of joblessness, a flattened housing market and rising unemployment that sets off a cycle of failing consumer confidence and a failure to put money back into the economy.
Recessions become official when there are two back-to-back quarters in which there’s a decrease in the Gross Domestic Product.
“We believe, in today’s markets, investors must understand macroeconomics and implement changes to portfolios according to that research. We spend a good portion of our time understanding the changes that are occurring in the economy with the aim of using that knowledge to make informed adjustments to the risk embedded in our strategy,” advises Alex Oxenham of Hilton Capital Management.
Hilton Capital Management in a privately-held investment firm that manages roughly $1.6 billion in assets.
Two Ways To Protect Yourself Against Financial Downturns
Employ dollar cost averaging
Dollar cost averaging is another approach that an individual can take to shield their investments from the effects of a recession.
This approach involves an investor or a broker buying a certain amount of stock in pieces over a long period of time. The amount being spent is fixed at first. As a result, the individual buys more shares stock when it is cheaper and fewer when it is expensive.
The client can make more money over the long-term than they would have if they would have invested all of their money at one point when the stock market may have been particularly high.
Be flexible with investments
This is really a strategy of short-term purchases and sales, and the market needs to be monitored at all times.
The client will buy or sell stocks or other assets in different ways, depending on the overall health of the economy. This means that stocks of failing companies can be sold before they crater. This way, the client doesn’t concentrate on only one resource, minimizing the possibility of losing everything and, hence, blunting the impact of a recession.
Considering An Investment Strategy?
The investment business is changing faster than ever, and it’s important to have professionals on hand who anticipate, react and adapt to the environment.
Oxenham offers this parting advice: “If Hilton Capital Management can give one piece of advice to those contemplating the investment journey, it would be to search out an investment manager that has experience, discipline, integrity and a strong investment process that will succeed in any market dynamic.”