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There is no such thing as a recession-proof investment, but there are definitely industries, stocks and strategies that tend to perform better in down periods.
The stock market is sensitive to fluctuations in people’s spending, as you’re likely to have noticed with the recent coronavirus outbreak and previous economic downturns. Some stocks can take a dive, but there are other investments considered to be “safe havens” that people usually turn to during a recession.
Here’s what to invest in during a recession, as well as some strategies for investing during economic downturns.
A “safe haven” investment is typically stable in times of market volatility and is also useful for investors looking to diversify their portfolio, decreasing exposure to riskier assets or investments. However, this doesn’t make the investment risk-free and as with all investing, you could still lose your capital.
Defensive stocks, also known as consumer staples stocks, include companies that produce goods that the public will still buy them even when financial times are tough or uncertain. People will aways need these staples. Even when we’re all counting our pennies, we’re still spending money (albeit, less money) on things like healthcare, food and utilities. These are the sectors that are more likely to do well while other sectors struggle. You can invest in these stocks through any trading platform.
If you’re already a homeowner, a recession doesn’t do you many favours. However, it can offer some investment opportunities if you can purchase while home values are down.
You don’t have to purchase a home to invest in property. You can invest in property investment funds, invest through peer to peer lending, invest with property ISAs or with land banking schemes. We have a handy guide to investing in property without actually buying property.
This is another product you can invest in without actually purchasing any physical goods. Precious metals such as gold and silver tend to continue to perform while there’s a recession. You’re likely to see the prices rise during this time as the demand for them rises, so you need to snap up a good price early on.
Not all currencies are considered safe havens. It generally depends on the government and the stability of their financial system. For example, the Swiss franc is generally thought to be a safe haven because of the stability of the Swiss government. The euro, US dollar and Japanese yen are also thought to be safe havens.
Foreign exchange (usually known as forex) is the market where currencies are traded, with profits and losses made on the changing exchange rate. Think about when you buy holiday cash, then imagine you sell it back a day later when there’s a different rate. That’s basically forex.
There’s not really such a thing as a “recession-proof investment”. Investments are risky. The closest you’ll get to “recession-proof” is safe havens. Save havens tend to be more stable while markets are volatile. Examples of safe havens include:
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