March 2020: Recession-proof your investments

With the recent threat of a global pandemic, and stock markets around the world in free fall, it’s very tempting to sell your investments and run for the door.

I encourage you to stay the course. The most important investing principle is to not lose your cool and not change your saving plan. Don’t let fear drive you to actions you will regret later.

However, there are some lessons we can take from recent events. There may be a slowdown in global economic growth. If that happens, the world economy could experience another recession. Investing during recessions is a bit different than investing in expansions.

Last week, we talked about recession-proofing your personal finances. Today, I want to address your investments.

Where do you invest in a down economy? If you already own businesses profitable during economic growth, hang onto them. But when you are investing new money, here are a few areas that may help limit your downside.

1. Consumer staples. When people lose their jobs or take pay cuts, they have to cut down their spending. They aren’t able to live beyond their means anymore, and hence they go bargain hunting. When people’s backs are against the wall, they get very resourceful. This applies especially to the basic necessities. Businesses that sell food, clothing, and other consumables at discount prices do well during a recession, because they help customers keep their cost of living low.

2. Agriculture. Everyone has to eat, even during a recession. Businesses that produce food products or manufacture agricultural commodities may fall in price during a recession, but they usually don’t drop as much and they rebound faster.

3. Utilities. While budget-cutting can affect consumption, certain types don’t get hit quite as hard in a recession. For example, you are probably not going to cut back on the number of showers you take in order to save on your water bill. You may adjust your home thermostat to save money, but you’re probably not going to shut your heat off during the winter. Utility companies can be a great way to maintain income during a recession. You can use that income to buy beaten down stocks in preparation for the economic recovery.

4. Health care. Everyone gets sick from time to time, and a recession doesn’t change this. When consumers get sick and need to see the family doctor or buy medication, they tend to prioritize it over other budget items if necessary.

5. Precious metals. I’ve mentioned precious metals to you before, and it deserves mentioning again. Precious metals are authentic cash, and when central banks are creating more liquidity to keep stock prices up, gold and silver will really shine.

Investing for recessions can keep you earning returns even during bad economic times, and you should always have balance in your portfolio. What that balance should be is an important question to answer. I can help you answer it, when you join my membership program.

In order to educate yourself on investing, I encourage you to pick up copies of my books The Money Mission, Tax Saving Strategies, and The Blended Retirement System. Since we are in tax season now, these will give you great ideas on how to invest and make money using the tax law to your advantage.

Have a great weekend, and until next time, I wish you unlimited success!

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