As the world braces for an economic recession, now is the time to transition into an investment strategy which is accommodating to current economic conditions.
Implementing a recession investment strategy will not only protect your financial position during these uncertain times, but also help you reach an advantageous position for when the economy resurges. Here are some options you may want to consider when implementing a recession investment strategy.
Invest in strong balance sheets
Balance sheets are financial statements which report a company’s assets and liabilities as well as shareholders’ equity within a specific period of time. During times of economic volatility, balance sheets are a good way to determine a business’ cash flow, debt levels and profit generation. To find profitable investments, first research business industries which typically have strong balance sheets such as utilities, consumer goods conglomerates and defense stocks. Businesses in such industries are likely less vulnerative to tightening conditions and have an easier time managing any debt that they do have. To confirm whether or not a business is suitable for your investment strategy, you can study their financial reports and forecast their growth.
Research emerging and recession-resistant industries
Despite the state of the global economy, there are certain industries which are emerging victorious and recession-resistant. For example, the telecommunication industry is thriving in current conditions, as social distancing rules push people to use at least one form of telecommunication to maintain contact with others. Social media platforms and online communication software are emerging industries which are attractive to investors due to their forecasted longevity even after quarantine is over. In addition to the telecommunications industry, researching other counter-cyclical industries will give you a headstart over other investors when such businesses continue to grow in the future. These businesses see an increase in demand when consumers cut back on more expensive goods and services or seek security from fear and uncertainty
Look into property investment
A low-risk asset class such as real estate is another option to consider when transitioning into a recession investment strategy. Property is an investment option known for its steadiness and with property prices at an all-time low, now is the time to invest in property for those already looking to get into the industry. Keep in mind that property is a long-term investment and is only viable for investors who are looking for a slow and steady return over the next few decades, especially as the Australian economy only recently entered recession.
Pay attention to recovery signs
The economy will inevitably cycle back into a recovery and it is important to take notice of this recovery stage to maximise profits. The recovery stage is characterised by low interest rates, easy month conditions and rising growth. During this period, risky, leveraged and speculative investment industries which have survived the recession will benefit from the rise in investor sentiment. As the economy normalises, these industries will be the first to bounce back as investors move into growth-oriented assets. However, counter-cyclical industries will not be as profitable during this time so it is important to stay receptive to market changes and maintain a diverse investment portfolio.