5 types of investments to consider during a recession

February 2, 2021 at 3:42 am

5 types of investments to consider during a recession

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In a booming economy, it’s easy to forget that what goes up will eventually come down. Yet the economic slowdown tends to be cyclical, meaning there’s another potential recession looming on the horizon.

The current pandemic could be ushering in the next deep financial hit. It is wise to be prepared for it whether it’s impending or still way off. The likelihood of you going on panic shopping sprees and stock sell-offs are slim if you have your eyes set on a strategy that protects your best interests.

Here are a few investment options to consider if you plan to survive the crisis.

Real Estate Investments

The housing market crash in 2008 was a disaster for homeowners but it turned out to be a blessing for some investors. When a recession occurs and home prices collapse, investing in properties is a golden opportunity. When you find and rent the property to a reputable tenant, you’ll have a stable income stream that lets you ride out the recession.You can possibly even sell it at a profit once the economy starts to grow again.

Rental can also provide recurring passive income, stable returns, tax benefits, inflation control and the opportunity for long-term appreciation. Often, rentals provide protection from recessions. Even during downturns, people still need a place to sleep. Although home prices may drop dramatically on occasions, rent seldom drops by more than a few percentage points.

Dividend stocks

A stock dividend could also generate passive income. You are effectively getting a portion of the company’s earnings after you invest in a product. It is usually advisable to search for businesses with low debt-to-equity ratios. Just to be on the safe side, you may want to concentrate only on absolutely reliable businesses. As a rule of thumb, keep an eye out on companies that have increased their dividend payouts for approximately 15 consecutive years or more.

Precious Metals

During market slowdowns, precious metals like gold or silver continue to perform well. But as demand for these commodities also rises during recessions, their prices also typically rise.

Many people invest in precious metals like gold, silver or platinum, not for income-generating opportunities but to protect against inflation and other market fluctuations. In other words, in times of economic instability, people often look to gold and precious metals for wealth retention purposes instead of wealth creation.

Other commodities

Precious metals are not the only commodities worth investing in. You may also invest in fruit, oil, and countless other resources, all of which are staples of modern life. Does a recession make people eat less corn? Not really.

Investing in commodities such as corn might not be sexy but who needs that when you know more of this exciting defensive investment. When the economy is solid, pundits may gush about high-growth tech startups, but these hot investments are often the first to fall during a recession.

Take note that unlike precious metals, not all commodities perform well during recessions. So be sure to dig deep and research before making the decision.

Other recession-proof investments

When a recession hits, there are plenty of alternative investment opportunities to look for that are as close to ‘recession-proof’ as can be. Keep an eye out on risky but potentially rewarding options and think outside of the box.

Alternative investments could include tangible assets, private equity or venture capital and hedge funds as well as property and commodities (mentioned above).

An example of an investment option that some people might decide on is whiskey – which produces returns of roughly 20% per annum and is generally not affected by markets. Because of this, whiskey is considered to fare better with time and leads to high returns.

There are other options.Look out for investments that are backed by insurance and investment options with Section 21 as a prominent component. Unconventional opportunities can be found in these seemingly inconspicuous gems.

With economic slowdown, there’s the potential for recession. Be prepared. Investment options such as dividends, precious metals and good old property are worth looking at. These could help you weather the storm and even come out on top.

Hampton Wealth specializes in wealth management and sourcing high-quality investment options such as listed bonds and funds with a focus on providing from normal to off the shelf returns.

Find out more at HamptonWealth.com