Investment Tips to follow during a Recession

What should you invest in during a recession?

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We have discussed how Covid-19 wreaked havoc around the world and how our country introduced a timely financial assistance to combat it’s impact in our last article. With this virus still making headlines globally, it is imminent that the world economy is going downhill fast. Such a predictable trend has been taking shape since the outbreak was cast into the light a few months ago. Thus, it is not hard to foresee the impact the outbreak would bring along its wake when people are getting infected at an alarming rate across the world.

Why should I even care?

Well, people who have experienced the financial crash that happened approximately 10 years part in 1997 and 2007 will certainly know what to prepare facing such circumstances. But those who are not as “investing-literate” or young people from a later generation would not comprehend the grave effect brought about by those crashes. It might even seem far-fetched for some people as they are still living the same way as they were along the years. So, why should they bother to prepare or even go to great lengths to understand how a recession could affect their livelihoods?

If you are still lurking in the unknown, hear this out. According to statistics published by FENetwork, around 33% of Malaysians, which translates to 1 in 3 Malaysians admit to having low confidence when it comes to financial knowledge. Although 76% of Malaysians have a budget, 2 in 5 find it difficult to keep to it. Around 1 in 5 working adults have not saved in the past six months. Most (84%) Malaysians who do save regularly only do so for the short-term – these savings are typically withdrawn at the end of the month.

When you are not taking the effort to delve more into financial knowledge, you are not prepared to face unexpected life events. It may sound incredible, but the truth is around half (52%) of Malaysians find it difficult to raise RM1,000 as emergency funds. To make matters even more trepid, only a quarter (24%) are able to sustain living expenses for at least three months if they lose their main source of income.

The finding is in fact, worrying, isn’t it?

Heads up. Invest now to save your future

Thus it’s always wise to learn and gain more knowledge in proper investment vehicles. If you are going to take a leaf out of this article, remember that stocks can perform even during a recession – the catch is to identify which ones.

Get a trusted and professional financial advisor who can help you build a recession-resistant investing plan 

1. Core Sector Stocks

Is the stock market playing tricks on you by giving you hope today and crushing it immediately on the following days? You might be tempted to stay away from the stock market during a recession which is obviously which perfectly and fine makes sense. However, this is also the moment where good stocks in the core sector will undergo unfair adjustment and the value of the stock might go below its intrinsic value. In a layman’s term, the price of the stock with a solid business operations and background might drop significantly which is not reflective of its true value and has a great potential to bounce back with greater degree when the economy picks up pace again in the near future.  Do not flee the equities market headlessly and pay attention to good stocks as this is an opportunity that will be very hard to come by. 

Defend your investment portfolio with reliable stocks. There are several “strong” and evergreen sectors that promise considerable returns when the economy adjusts back its pace such as healthcare, utilities and consumer goods sectors. You could even judge the profitability of such sectors with your common sense and why they would persevere even during recession. No matter how conservative a person is, he or she will still have to spend money on medical care, household items, electricity and food, regardless of the state of the economy. As a consequence, these stocks tend to perform well during a recession period.

2. Reliable Dividend Stocks

Are you putting your whole fortune inside the bank or fixed deposit? Even though you might not be an aggressive investor, you should not ignore the option of investing in reliable dividend stock. In fact, investing in dividend stocks is akin to having fixed deposits. The only difference is that the price of the dividend stock will fluctuate according to the market sentiment. You will still receive a dividend in the form of cash every year which is a great way to generate passive income. Apart from the dividend income, you could also sell off your stock when the timing is right and you could double or triple your overall income just by doing that!

However, investing in dividend stock is still a double-edged sword for most people. You will need to compare different dividend stocks as well as their corresponding fundamental insights. The general notion is to look for companies with low debt-to-equity ratios and strong balance sheets. If you don’t know where to start, you may want to look into dividend aristocrats, which are companies that have increased their dividend payouts for at least 25 consecutive years. Not sure how to search for such company stocks? Book your consultation slots with us which is totally free and we will get you on the right track.

3. Real Estate

The nightmare of 2008 housing market collapse was still hovering in the minds of property owners and investors alike and the real estate market is not giving any hint of an uptrend until now. However, there are literally those smart investors who have made progress in their investment portfolio during those testing times. Of course the price of the property has played a major part in effective real estate investing. People could not afford to buy or rent a house when the price of the property is lingering above the “high” level which is the case in recent years. In spite of this, property remains a lucrative investment option especially in the recession market as the home values will almost certainly drop based on the current trend of the economic slump. As a matter of fact, you would not want to miss the opportunity of a lifetime when property under the management of Prolution is generating consistent rental income for our investors. More than that, our investors have been able to own multiple properties with literally zero instalment. Learn how we can help you to invest in profitable real estate during this recession.

So getting ready your cash at hand as well as finding effective cum time-saving ways to procure loans from the bank might be a wise option in anticipation of the correction in the property market. Remember, once real estate values start to rise again, you can sell at a profit.

4. Precious Metals

Though it might sound like the old cliche, investing in precious metals like gold or silver is always a stable and reliable option. The reason behind is people are afraid of putting their money in a liquidity platform that might go bust if the economic slowdown is only the start of a falling avalanche. Precious metals are not as “virtual” as paper assets like stocks and bonds. So people are inclined to put more trust in them especially in recession where the value of their investment could be preserved in the form of precious metals. Generally speaking, when the demand for these kinds of commodities increases during recessions, their prices usually go up, too.

5. Invest in Yourself

Alright you have been confined to your home during MCO. You might be working from home or having a temporary “long layoff”. Well, guess what, this is the most appropriate time for you to start investing in yourself. You could spend more time with your family as well as giving some other interests a good head start. Surfing the net for information, searching for valuable e-books as well as attending webinars and listening to insightful podcasts would do you a whole world of good when you don’t even have enough time to do any one of these during normal times. 

If there is one thing to start learning or if you have already started, to get it polished, will be the art of managing your finances and investment. The knowledge and skills will prove priceless especially at this moment where the whole world has started to see the slowdown in the economy, heading gradually into recession. It will be at this time that good and solid stocks will see unfair adjustment in their price and it will be a lifetime opportunity to pinpoint the golden goose and build your financial stability. 

Start your investment learning journey with us here.

Bottom Line

One thing to note, however, is to stay calm amid the storm of recession that is brewing. It may be natural if you are unsure of the situation and wish to cash out on your current investment and take some profits off the table. But please bear with the slowdown in the economy as our strategy should not be to sell when prices are low, which is the case for the overall equity market. What prices will be the lowest before the plunge in value will stop? No one knows except to have your due diligence or engage a professional financial advisor to provide you with a comprehensive analysis on the market. 

Though one thing for sure will be to have a right balance of short-term and long-term investments in your portfolio. Have a complete evaluation on your own finances and if you  have cash to invest, you may want to consider buying into recession-friendly sectors such as consumer staples, utilities and health care. Bear in mind that stocks that have been paying fine dividends for many years are also a good choice, since they tend to be long established companies that can withstand a downturn, a reliable hedge against the weakening bear market.

And again, stay home, stay safe everyone. We will overcome this predicament and we shall rise again.

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