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Investing Through a Recession

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How should I invest during a recession?

Sean Gilbert

Chartered Financial Planner

9th January 2023

As the UK economy struggles, many investors are concerned about how to secure their investments and make the most of their money. Investors may face difficulties during a recession, which is defined as an economic downturn lasting at least two consecutive quarters, but there may also be possibilities. We will discuss some tactics and advice for investing during a recession in this article.

First and foremost, it’s critical to understand that recessions are a typical feature of the economic cycle. Periodically, they take place as a result of a variety of variables, including excessive borrowing and lending, high debt levels, war, or a downturn in global growth. Recessions are usually followed by a rebound as the economy makes adjustments and stabilises, despite the fact that they might be challenging to anticipate.

The stock market frequently goes through a dip and prices drop broadly during a recession. Investors may find this to be a concerning development because it may reduce the value of their holdings. But it’s crucial to keep in mind that investors have other options besides stocks. In fact, because investors are looking for safe and reliable assets during a recession, several asset types, like government bonds, frequently perform well.

Diversifying your portfolio is one way to invest during a downturn. To diversify your risk and lessen the effects of a downturn in any one specific asset class or nation, this entails investing in a number of assets, such as stocks, bonds, and property around the world. You may lessen the volatility of your portfolio and even shield your money from the harshest effects of a recession by diversifying.

Concentrating on high-quality investments is another tactic. Investors frequently panic-sell their stocks during a recession, which lowers prices and creates opportunities for long-term investors. You may be able to benefit from these decreased prices and invest in these businesses at a discount by concentrating on high-quality companies with solid fundamentals. These businesses are probably better able to weather the storm and rebound once the economy picks up.

During a recession, it is also important to think about defensive assets. Investments like utility equities, consumer staples, and healthcare firms all have a propensity to hold or even gain in value during a downturn. These industries are frequently regarded as being crucial and are less susceptible to economic cycles, making them a safer investment during a downturn.

Being persistent and patient while investing during a recession is a further piece of advice. Selling your investments at the first indication of problems may seem appealing, but this is frequently the wrong strategy. Selling at the bottom of the market can result in missing out on possible gains because history has shown that the stock market typically recovers from recessions. Instead, as long as your investments are sound and your overall financial condition is healthy, it is generally preferable to keep to your long-term strategy and weather the slump.

Investing during a recession can be difficult and frustrating, but it can also offer possibilities. You may be able to protect your funds and benefit from cheaper prices by diversifying your portfolio, concentrating on high-quality assets, and taking defensive sectors into account. Above all, it’s crucial to exercise patience and stay the course, because the stock market has a track record of recovering from downturns.

This information is based on our current understanding and is subject to change without notice. This article is for general information only and does not constitute advice.  Whilst information is considered to be true and correct at the date of publication, changes in circumstances, regulation and legislation after the time of publication may impact on the accuracy of the article.

The value of investments and the income from them can go down as well as up and you may not get back the amount originally invested.

HM Revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen.

We have local offices in Edinburgh, Falkirk, Glasgow, Livingston and Stirling and provide Financial Advice throughout Scotland. If you would like to speak to an Independent Financial Adviser (IFA) then book your free initial consultation.

Sean Gilbert

Chartered Financial Planner

Chartered Financial Planner at Select Wealth Managers with 14 years of Financial Services experience. Before working in Financial Services, Sean…


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