Investing During a Recession: How to Do It Wisely
With some of the most powerful nations in the world sinking into recession due to the coronavirus pandemic, you may have questions about investing during a recession and how you can manage your wealth right now.
The situation is changing by the day, with uncertainty surrounding the stability of the U.S. dollar and a weakened global economy. With so many uncertainties, it can be difficult to know what to do next. Do you invest now, before the situation changes? Or sit tight and wait to see what unfolds toward the end of the year?
Although there are those who believe that now is not a good time to invest, it is possible to make some financial changes now. As long as you have an understanding of the current status of the global economy and know how to invest wisely during this unique situation, you could potentially see positive results from investing during a recession.
Recessions Around the World
In order to know where to invest during a recession, it’s worth having an idea of the countries that have been negatively impacted by the pandemic. The UK’s economic output fell by 20.4% in the second quarter of 2020, sending it into the deepest recession of any of the world’s major economies and marking the worst crash since quarterly records began.
Other European countries also tipped into recession in the months prior to June this year. France fell 18.9%, Italy dropped 17.1%, and Germany went down 11.9% in the second quarter. The U.S., meanwhile, was down 10.6% by the end of the second quarter.
However, while these numbers are something to be wary of, there are industries that have managed to thrive during this period. By looking at these sectors where there have been signs of growth, you will see that there are opportunities for investing during the recession.
For instance, e-commerce sites saw a surge in interest during lockdown, while a rise in interest in DIY projects saw sales jump by 42%. With these sectors flourishing, investment opportunities across these areas could be worth looking into.
Why Investing During a Recession Can Make Sense
While you must be careful when investing during a recession, even if you are looking carefully at the pockets of opportunity that are available right now, there are other reasons to be optimistic. According to London-based financial consulting firm Saunderson House, “It’s important to remember that the global economy has recovered from financial crises in the past. Although we can’t say when, it’s our view that ‘normal’ economic conditions will return.”
Based on previous financial crises, the economy is expected to bounce back, although how quickly this will happen is still up for debate. There were initial signs of recovery in the stock market in June, and the markets have been doing well despite economic factors like job losses. In fact, now could actually be a smart time to invest.
Based on the outlook provided by Saunderson House, like previous financial downturns, this one will eventually pass. As an investor, it is crucial that you take a long-term view.
There are some aspects of the current climate that mean you may find that it is better to invest now, during the recession, rather than holding on for more signs of improvement. This is largely because the markets will have already priced these positive movements in. So, right now, you can buy lower and sell higher, which could allow for significant returns over a long period. By waiting for the economy to completely recover, you could see a smaller return on your investment.
Investing During a Recession in the Right Areas
The key to investing during a recession successfully is to do some research and discover the right areas to focus on. One way to do this effectively is to speak to financial advisors. These are experts who follow the economic highs and lows, and getting their input can be a smart way to find the best opportunities for you.
You will also need to think about the industries that are doing well right now. Is the DIY market still seeing a boost in interest now that we are slowly returning to life after lockdown? Or has the public mood shifted and seen a rise in popularity in another sector? By working out the industries that will continue to succeed in a post-pandemic market, you could find that you are perfectly placed to invest in these markets.
Some areas that have been relied heavily upon during the last few months, such as online food delivery services and download and streaming sites, mean that technology stocks have benefited from the lockdown. Likewise, some consumer staples have seen a lift in popularity as we all invested in hand sanitizer and face coverings. It is these sectors that are worth looking at investing in as many of us continue to work from home right now.
Being savvy is crucial here. Get financial advice from experts to ensure you invest wisely and assess where the areas of growth are in order to know where to funnel your investments. Also, although it can be a smart to invest during a recession as shares are lower, it’s essential that you have a long-term outlook and that you are willing to weather the storm through any market volatility the recession can cause.
About Jonny Hughes
Jonny Hughes is a freelance Finance and Business writer.