Financial gurus will actually make money during a recession. In fact, the current economic situations should have no significant impact on your personal finances as long as you think smart and plan ahead of every investing decision you make. Yes, indeed some people will withdraw themselves from investments during a recession, fearing total economic collapse, but this just sucks more money out of the economy, prolonging a recession. Instead, smart investing will help keep your head above water while preparing for the future.
So what exactly is ‘smart investing’?
First and foremost you must identify which businesses will remain above the water during troubled economic times.
There are a few businesses that maintain their profitability and others that actually thrive during difficult economic times
Therefore lets take a look:
Discount stores are likely to see an increase in sales and revenues. The worse the economy becomes, the less disposable income most households have. As more and more people are laid off from their jobs, and as unemployment rates increase, increasing numbers of people have no choice but to stretch their income and shop at discount stores. Perfect examples of strong companies maintaining their presence are Wal-Mart (NYSE:WMT), EBAY (NASDAQ:EBAY) and Costco (NASDAQ:COST).
Next, industries that provide basic necessities for living will be able to continue relatively unchanged by the economic forces surrounding it. Sectors such as health care, pharmaceuticals, retail grocery stores and grocery wholesalers, waste management services, auto repair and maintenance services have relatively consistent demand regardless of the economy. This is also referred to as inelastic demand. A List of grocery companies listed on the stock market can be found here, and as well pharmaseutical companies.
Now that you have the basics down, let us move onto more intricate details.
Call for Back-Up
You don’t have to be a policeman or a firefighter in order to have the need for professional help. It is one thing to manage your own decisions when the economy is pumping along normally, but quite another to trust your own judgment during a recession – especially if you have just begun your journey to investment wealth.
A better idea is to hire a financial planner, investing consultant or investment banker to make those difficult decisions for you. They are trained in finding the best deals when the economy takes a nose dive, and can help you identify investments you wouldn’t otherwise have considered. Remember the old saying, “You have to spend money, in order to make money”. However, do not be afraid at questioning your broker’s decisions or advice that he has given you, after all it is your money in the end.
Play Safe
Even if you usually tolerate medium- or high-risk investments, a recession is the time to scale back. While you do want to continue making money from investing, high-risk behavior is going to be your worst enemy. Focus on stocks, bonds, and money markets that are unlikely to dip, and evaluate your decisions every few months (or weekly if you have the time) to see how they are doing. It is extremely important to monitor your stocks almost daily, as high fluctuations in prices and news will likely more than double during these times. Here is the link to a video post I created which analyzes two important techniques for you to keep up-to-date with the current markets and companies simultaneously.
Remind yourself of Physics
“What goes up, must come down”, yes indeed Sir Isaac Newton lived within the 1600s, yet this phrase still applies to us today. As you witness and hear about bankruptcies, declining revenues and lawsuits pilling up,never forget that this is all a part of the Economy’s Life Cycle.
However, unlike Mr. Newton’s theory, in the case of the economy it is also known that what goes down must also come up. So let’s not forget that while in recessions liquidity and cash at hand is the most important asset, companies are also at their lowest points and become valuable investments to consider for the future. Hidden gems are to be found within these rough sands, so lets start digging!
Good luck to all my fellow investors alike!
I’ve been thinking about buying more shares of GE. My portfolio is depressing so I just mostly ignore it.
Nice blog!
great blog. the honesty is refreshing.
Good blog, great effort,
I am new in this field trying to increase traffic.
Thanks alot everyone, please remember to visit back soon!
I guess you can’t get too much advice about investments. In the end, each of us has to sort out meat from myth. My blog advises not to consider art, fine art or tribal art, or collectibles as sound investments. Even though some art objects have held their value better than equity based paper, the primary reason to “invest” in art is for the enjoyment it brings you while you own it. That’s the real pay-out.
Thanks for this advice and listening to mine.
[...] mind that liquidity and cash at hand is the most valuable asset, as stated in my previous article Investment Tips during a Recession. Due to this, small businesses will continue to have an overall poor financial [...]
[...] Investment Tips during A Recession [...]
Thanks for the information. I have a question regarding lunching a startup at the time of global recession. Is it a good idea to start a new business in summer 2009 for example?
Hello Natalie, thanks for the inquiry. “As with all recessions, a decrease in buying power is to be expected as unemployment continues to sky rocket. It is imperative to keep in mind that liquidity and cash at hand is the most valuable asset, as stated in my previous article Investment Tips during a Recession. Due to this, small businesses will continue to have an overall poor financial outlook.”
Now, it is important to get an idea of the type of business and the sector you are wishing to enter. Ask yourself, are the services im offering more of a necessity to people? I.E. Health Care, addictions such as smoking or highly immersed with coupons and deals? As writen in my article, expect small businesses to be highly effected, with the exception of convenience stores and such which offer lower prices and constant deals.
In economic turmoil, very few companies and individuals will continue to go out of their way and pay cash for luxury goods & services.
You are good in investment! I just knowing the basic!
[...] Earnings are to be released today, and I expect them to crush it due to a solid year, plus the ongoing battered economy helps out stores involved with discounts, coupons and other price cuts. Forward guidance should also be bright for the next couple of years! Here is a recent article I wrote on ‘smart investing during a recession‘. [...]
[...] Earnings are to be released today, and I expect them to crush it due to a solid year, plus the ongoing battered economy helps out stores involved with discounts, coupons and other price cuts. Forward guidance should also be bright for the next couple of years! Here is a recent article I wrote on ‘smart investing during a recession‘. [...]
Great informative and helpful blog… Keep posting
That’s a good article if you want to know more about how to become recession proof check out the Recession Proof Academy.
[...] the holiday season fast approaches during one of the most hard hit economic times in recent memory, certain discount companies look to profit and gain recognition, differentiating themselves from the pack. One of these such companies is BizAuctions Inc. [...]
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