All investing should be regarded as longer term. The value of your investments can go up and down, and you may get back less than you invest. Past performance is no guarantee of future results. If you’re not sure which investments are right for you, please seek out a financial adviser. Capital at risk.
When the stock market is as volatile as it is at the moment, it’s no surprise that everyone’s gone mad for share trading. But should you invest during a recession, and if so, what should you invest in?
The stock market is sensitive to fluctuations in people’s spending, as you’re likely to have noticed with the recent coronavirus outbreak. Some stocks can take a dive, but there are other investments considered to be “safe havens” that people usually turn to during a recession.
Did you know?
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.
Healthcare, food and utilities
These are known as “defensive stocks”, which basically means that consumers will still buy them.
When investing during a recession, you mainly want to think about what stocks and shares are still likely to do well. Even when we’re all skint, we’re still spending money (albeit, less money) on healthcare, food and utilities. These are the sectors that are more likely to do well while other sectors are struggling. You can invest in stocks and shares through a trading platform. If you go with a platform that allows you to build your own portfolio, you can choose which companies you want to invest in.
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If you’re already a homeowner, a recession doesn’t do you many favours. However, it can offer some investment opportunities if you 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.
Tips for investing in a recession
- Think about the long term. If you think you’re going to need your money soon, it’s not really wise to invest it in stocks that are going to be unstable to start with.
- Eliminate debt and have money saved up for emergencies. You can make additional savings for investing this way, to ensure that you’re not going to need to withdraw if your boiler fails or car breaks down.
- Avoid the high-risk stocks. Stay a bit cautious when investing during a recession as stocks tend to be a bit more tumultuous.
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:
- Healthcare, food and utilities
- Precious metals
- Some currencies
This article offers information about investing and the stock market, but is not personal investing advice. The value of investments can fall as well as rise, and you may get back less than you invested. Past performance is no guarantee of future results. If you’re not sure which investments are right for you, please get professional advice, for example from a financial adviser.
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