Although signs of a recession loomed large throughout 2022, the US economy has remained resilient. But even after multiple interest rate increases, and continuing hikes expected throughout early 2023, many economists are expecting a mild recession. According to the average recession predictions among economists, the US economy has a 64% chance of a downturn, with very few experts predicting that the financial system may avoid one altogether.
Historically, recessions have lasted anywhere from two months to several years. However, given the unique circumstances of our economic climate, if a recession were to occur it would be particularly difficult to predict how long it will last.
If you are worried about your investments, there’s good news. Recessions can be great opportunities to build wealth for a variety of reasons. Read on for recession investment tips that can help you during times of economic uncertainty.
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Strategies That Work for Everyone
For starters, bear markets provide a buying opportunity for stocks that compound in value at a discounted price. Ultimately, you want to build a diversified portfolio across a range of sectors with a healthy mix of stocks and bonds, so look for companies or organizations with good management, low debt, strong pricing power and a long history of earnings increases.
Furthermore, some sectors of the economy, such as health care and consumer staples, outperform others as consumer needs shift. You may also consider investing in large-cap stocks, or shares in companies with valuations of $10 billion or more. These companies tend to be more stable during times of volatility.
In addition, bond yields have increased dramatically as the federal reserve fights inflation. This increases the returns you can get from fixed income investments, which are traditionally a great diversifier, income generator, and principal protection aid in an investment portfolio.
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Another strategy to consider is tax-loss harvesting. Tax-loss harvesting allows an investor to sell investments that are in the red, replace them with similar investments, and offset realized gains with those losses. Because many investments are down during a recession, tax-loss harvesting is a good option, and if done correctly can lead to higher portfolio returns.
While there’s no single strategy that is recession-proof, a qualified financial advisor can provide more recession investment tips and tax strategies to help steer you through economic downturns.
Strategies Designed for You
An investment portfolio should be designed to meet your specific goals, life situation and financial situation. These goals and situations should flow from your financial planning, which should be done in conjunction with your investment plan. In other words, don’t just invest- invest with purpose.
To understand how to invest during a recession, you need the help of qualified investment management services. At Blankinship & Foster we believe your portfolio should be transparent, low cost, and well-diversified. That’s why we take the time to understand your financial situation and goals for today and tomorrow.
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