Shifting Your Investing Mindset During A Recession

What is a recession and has it hit the US?
I have touched on this subject a handful of times in the last few months, but it is something that interests me, and clearly the rest of the blogosphere as these are a high hitting posts that chat about recession. it is on everyone’s mind; and people want to read about it. A perfect fit I’d say. So yes, we’re not “officially” in a recession yet, but a recession is defined as two consecutive quarters of negative growth in gross domestic product.

This hasn’t happened yet but most people agree that the U.S. economy is at least slowing down, and it’s perfectly normal to ask what you, as an investor, should do. Annie Sorich wrote this column which makes perfect sense and can be narrowed down to the simple strategy of not panicking. Once you’ve realized you’re not doing that, be prepared. Everyone agrees that a down market is usually a better time to buy than to sell, so stay put. Investing steadily through dollar-cost averaging is often your best bet. Basically the premise is that you’re investing each month no matter what. It’s also a good idea to keep your efund stocked up pretty well just in case. Keep investment in your portfolio that people need, even in a recession.

But what should I invest in? Should I trade off what I’ve BEEN investing in?
If the recession does hit us up, think staple. What do people need no matter what? Money has to be going somewhere for an economy to survive. Where is it going? Likely to the staples of living; food, transportation, and medical are likely not to go out of style as long as there is a human race. Find a fund that is strong in those realms if you’re looking to keep your $ up. If you’re in technology funds and are under 40, I’d hang out, things will turn around and you MAY be buying while they’re cheap.

On the other hand, stocks that are susceptible to economic and business cycles traditionally do poorly in a recession, prime examples being technology hardware and many industrials. Clearly nobody is going to be investing in the “next big thing” when they’re trying to get out of the “current bad thing.”In a broader sense, defensive, relatively low-risk investments, such as blue-chip stocks with steady earnings, are supposed to do well in a downturn, while higher-risk investments, such as small-cap stocks, do worse. Also, hard assets, such as precious metals and real estate, are considered defensive and traditionally do well in a downturn.

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  • But what should I invest in? Should I trade off what I’ve BEEN investing in?

    To anyone asking these questions, I’d recommend they (1) step back, (2) read a good book or two like Larry Swedroe’s Wise Investing Made Simple, and then (3) seek out a competent fee only investment adviser (the book helps with that too).

    Some of the biggest investment loses are made by reacting to investment hype and not sticking to a reasonable, balanced asset allocation.

  • Great information! I think many are scared about what’s to come.

    Ginger @ Girls Just Wanna Have Funds’s last blog post..Bulletpoof Your Finances with Lessons from the Recession

  • We are for sure in a recession and this is exactly why I have pulled almost all of my money out of the market. Fortunatley I have the ability to trade the market with a short term time line. Of course family members and friends are reaching panic mode as to what to do with the current market comditions. I for one think it will be some time before we see a market rebound.

    Phil@emini trading’s last blog post..Emini Trading Room – How To Trade Eminis And Profit As A Beginner