Recession Proof Investments: Crisis Investing Strategies Explained
The U.S. economy has seen steady growth for the past 10 years, and with current events being the way they are, it could look like we’re headed for a huge recession. If you’re feeling the same, you’re among millions of others who are nervous about the economy amid coronavirus. This could be a good time to look at how you plan to recession-proof your investments.
How to Invest During a Recession
As with all investing advice, it’s hard to say what you should do that’s specific to your situation–that’s why it’s a good idea to seek the help of an investing professional to address your concerns.
That being said, generally speaking, investing, especially during a recession or a time of crisis, requires that you don’t succumb to your emotions or panic. That could lead you to make decisions that aren’t financially healthy for you in the long run.
It’s hard to predict the market, so it’s important to diversify your portfolio. For example, try to put your funds in a combination of stocks, bonds, real estate, hard assets, and alternative investments. Remember to do your due diligence and only invest in what you know and feel comfortable with.
As the markets keep changing, it’s important to rebalance your portfolio to maintain your usual asset allocations so that your risk tolerance level remains the same. Or consider rebalancing it to make it more conservative. For example instead of 70% stocks and 30% bonds, you can switch to 60% stocks and 40% bonds. Of course, it’ll depend on how long you want to wait until you need your investments–make sure you have a sizable emergency fund in place no matter what.
There are lots of online brokers that can help you cut through the confusion when it comes to understanding portfolio allocations. Some appear more beginner-friendly like TDAmeritrade, which provide more hands-on help or ones that offer lower fees like Ally Invest. For those who want a more robust trading platform, E*TRADE offers lots of free educational and analysis tools to help your research.
If you are investing in individual stocks, you want to maintain a long term perspective. The most successful investors look at investing stocks as a way to get ownership stakes in a business, not a bunch of numbers that jump around. That means ignoring short term stock prices, you look at the longer-term results.
If you don’t have a lot to invest, there are always micro-investing options. That way, you don’t need to worry about minimums and you can automatically invest with your spare change or with amounts as little as $5.
Some companies you can look into include:
- Public (commission-free trading for stocks) | Public Review
- Stash (automatically invest your spare change) | Stash Review
- Webull (no commissions and no minimums for investing in stocks, options, ETFs and cryptos)
Types of Recession Proof Investments
If you’re looking for more “stable” types of investments to help you weather out the recession, there are traditionally a few that can help, like bonds. That’s because they experience less volatility compared to stocks. It goes without saying that there are no promises or guarantees in investing–just types of investments that can help you weather the storms.
Here are some ideas of what you can invest in during recessions.
Investing in gold and other types of precious metals has been one of the more popular ways to find a relatively-less-volatile investment but also one that has the potential to increase wealth. You can invest in things like gold ETFs or physical gold. How that works is you purchase gold boullions or collectible gold coins and store them in a safe location. Gold IRA companies like Noble Gold Investments, Augusta Precious Metals, and Gold Trust Precious Metals are reputable companies that can handle the purchase, delivery, and storage of physical gold for a competitive management fee.
Aside from precious metals, you can invest in different types of hard assets. These typically hold their value and may increase, helping you recession-proof your portfolio. Some of these hard assets may include collectibles and pieces of art.
If you’re thinking that you can’t afford it, there’s a service called Masterworks where you can purchase shares that represent ownership of a masterpiece so you can share in its appreciation. Masterworks does the sourcing and research, and it’s up to you whether you want to invest. You earn money when Masterworks sells the painting and distributes the proceeds.
It’s understandable if you feel you’re too emotional to make investment decisions. Or you’re interested in having someone help you manage your portfolio during an economic recession but don’t want to pay an arm and a leg for it.
Here’s where robo advisors come in. For a small management fee (in some cases, it’s free), you can put in money into a portfolio and have the brokerage’s algorithms take care of it. There are human advisors if you have questions, but otherwise, once you indicate your risk tolerance, it’s taken care of for you. The three most popular ones out there right now are:
- M1 Finance (you need a $100 minimum and no management fees) | M1 Finance Review
- Betterment (has a 0.25% fee but offers human advisors and the option to add a high-yield savings account) | Betterment Review
- Wealthimple (starts at 0.5% fee but goes down to 0.4% if you invest more than $100,000) | Wealthsimple Review
You Can’t Time The Market
There are lots of investors who will want to take advantage of crisis investing–where you take advantage of the low prices in the market to earn a healthy profit or buy real estate at low prices and flip them for a profit when the market is better.
The truth is, even the most experienced investors can’t time the market, meaning you probably can’t either. The key is to not let your emotions get the better of you and to stay the course. Take some time to diversify your portfolio and incorporate some recession-proof investments to help you sleep better at night.