There are several types of bond funds that are particularly popular with risk-averse investors. Funds made up of U.S. UU. Treasury bonds lead the pack, as they are considered one of the safest.
In the last section, we mentioned index funds, and those can be a great way to invest, whether in recession or not. By buying index funds, especially index funds S%26P 500, you are betting on the long-term success of the U.S. For long periods of time, it's been a pretty solid bet. Avoid costly dividend cuts and create a secure retirement income stream with our online portfolio tools.
Try Simply Safe Dividends FREE for 14 days. While Treasury bonds provide stability, there are times when they barely keep up with inflation, and now is one of those times. Other forms of government-backed debt, such as I-bonds or Treasury inflation-protected securities (TIPS), may be better options during periods of low interest rates and high inflation. Commodities are raw materials, such as metals and grains, that can be used individually or as components of other products.
Long regarded as a potential hedge against inflation, commodities offer investors some ways to invest. The easiest, and perhaps one of the least risky, is through an investment fund that invests in businesses that participate in commodities, such as mining, energy or agricultural companies, for example. Pharmaceutical stocks, a subset of the healthcare industry, are traditionally considered “defensive,” along with other industries such as utilities. This is because, even in the midst of an economic crisis, people need medicines and treatment for diseases.
For example, if you're taking a blood pressure medication, you're not likely to stop taking it when a recession hits. You'll most likely continue to take your medications, even if that means you have to find a new way to pay for them. This and many other examples demonstrate why healthcare stocks can continue to be a good move, even in a declining economic trend. A high-yield savings account may not be the best long-term investment for your money, but it can be a good place to overcome uncertain economic times.
Even in an era of near-zero interest rates, many high-yield accounts still offer more than what you would get in a normal checking or savings account. And that way, your money will be safe during a recession, when you may need emergency funds to overcome difficult times. Tech stocks aren't always considered a classic defensive move during a recession. However, the COVID-19 recession could be different.
With so many people around the world staying at home longer than before, technology has proven to be a vital and prosperous link until now. Between binge-watching Netflix, ordering items from Amazon, or connecting with friends, family and workers via Zoom, many tech stocks hold up quite well during this recession. Trend may continue as long as social distancing is required. Grocery stores operate on tight margins, which can make them complicated investments.
However, during recessions, grocery stores often see an uptick in sales and profitability. As consumers cut back on eating out of restaurants, they tend to buy more food and eat at home. Even during the darkest of recessions, people still need to eat, and grocery stores offer this necessary service in a more affordable package than restaurants. Utility stocks fall into the same defensive and necessary category as grocery stores.
Even when consumers cut their expenses, they still need water to enter through their pipes and energy to enter through their lines. There will always be a demand for the product offered by utilities, even during a recession. Utility stocks also tend to pay high and consistent dividends, making them more attractive to investors looking to get defensive. With all that in mind, you may wonder if investing is a good idea if we are in a recession or if we are going in that direction.
In some cases, you can also choose to sell the bond to another investor in the secondary market before its maturity date. Known as dollar cost averaging, this strategy refers to investing equal amounts in dollars at certain time intervals, rather than buying everything at once. For example, if you want to invest only in consumer basic goods companies, you can look for shares in Vanguard's Consumer Staples ETF or the Consumer Staples Select Sector SPDR Fund. Another option is to invest in dividend ETFs, which comprise companies known for routinely paying solid dividends.
In addition, lower stock values offer a solid opportunity to invest cheaply (in relative terms). In theory, that's bad news for an existing portfolio, but leaving investments alone means not blocking recession-related losses by selling. Diversification is the process of assigning different sections of your portfolio to uncorrelated investments. The headaches that come with investing in physical gold, silver, and platinum, such as storage and insurance costs, is why many turn to mutual funds and precious metal ETFs.
When the economy is in the depths of depression and things can't seem to get any worse, it might be a good time to start taking a look at the investments that will prosper when the economy recovers. If you are interested in investing in real estate but need some degree of liquidity, check out Real Estate Investment Trusts (REITs). Investing in funds gives you exposure to specific baskets of securities, rather than a single investment (such as an individual stock). In times of recession, this is a way to invest in several companies in the most resilient sectors and avoid concentrating risk on a single company.
It may be a good idea to invest during a recession, but only if you are in a strong enough financial position to do so and only if you have the right attitude and approach. If you don't think you'll need that money soon, a certificate of deposit can be a good place to weather a recession and keep your funds safe until you can reinvest your money in investments with higher return potentials. . .