If there is an economic turmoil going on, it is only natural for people to know if investing during a recession makes sense at all. Although there are investments like stocks that tend to be more volatile during a down market, most investors can still take advantage of the recession as long as they follow a few timeless basic strategies.
Ways to Make Money from Your Investments During a Recession
Even though it can be very tempting to engage in market-timing methods amidst falling and low stock prices, investors might be surprised to learn that the best means of making money if you invest in a recession involves almost similar to the tactics used during a booming economy.
Here are some of the best timeless practices you can apply for successful investing if there is an ongoing recession:
- Rebalance your portfolio
Every time you rebalance, you are returning your allocation of assets to the original targets. For instance, if you have a target allocation of 40% bonds and 60% stocks, there is ac chance that you have a lower stock allocation and a higher bond allocation during a recession. If you rebalance your portfolio during this scenario, you are going to buy stocks and sell bonds to go back to your target allocation.
- Continue to DCA or dollar-cost average
It doesn’t matter if you have regular 401(k) contributions, a regular brokerage account, and an IRA, it is recommended to continue the contributions, particularly if recession hits. The dollar-cost averaging concept, particularly with stocks, is that you generally buy shares at much higher prices if there is a strong economy and at relatively lower prices if there is a recession. If you buy lower, the price will also be averaged lower that can increase your returns down the road.
- Maintain a long-term perspective
For those who invest in stock mutual funds or stocks, it is possible that you don’t have to withdraw from the investment accounts for 5 to 10 years at least. This is the reason why you should not really worry that much if short-term fluctuations occur in the market.
Never Abandon Your Current Investment Strategy If There is a Recession
The economy might be in the midst of a recession but it doesn’t mean you have to change how you invest to make it different from what you usually do when there is economic growth. This is applicable wisdom to short and long-term investors as well as retirees.
Be Aggressive Based on Your Risk Tolerance
For those investors who want to make the most out of market correction during the recession, make sure you don’t get too aggressive and end up buying more stocks than what you usually do if the economy is doing better.
Since there is no way for you to predict when an economic recession will occur, it is always best to plan your investment strategy while things are great and follow it through even during a down market.