A recession is an economic downturn that results in lower business activity and valuations. It’s a time when many businesses are fighting to stay open. Investing during a recession is particularly difficult because most economic sectors are in free fall, and the market is fearful.
Recessions don’t last
Recessions are a time of fear and anxiety. Stock prices may fall 15 percent on average, and many will fall even further. In such an environment, it is tempting to give up.
The good thing about recessions is that they don’t last. They last for approximately nine months. They are normally a reset, and substantial economic growth follows.
So a savvy investor can get into the market at the lows and benefit from the coming economic boom. But timing the market is always challenging.
What you should know about investing during a recession
Bonds usually perform well during a recession. That is because the central banks cut interest rates to try and stimulate demand. The rate cuts usually reduce the bond yields and increase the bond prices.
When the business environment becomes precarious, cash holdings become critical. When investing during a recession, you can acquire liquid assets like money market funds and certificates of deposit (CDs). The cash holdings give you more options should an emergency, threat, or opportunity arrive.
Stocks are the most volatile financial asset during a recession. People and companies tend to cut discretionary spending and focus on keeping the essentials. The slowdown in spending typically affects the technology and media industry while food and healthcare perform well. If you invest in companies that provide necessary services, you will weather the storm better than most.
Invest in a franchise
While investing during a recession may be considered unconventional, it can work. You can launch a company in a recession if you want to take command of your wealth. To reduce your risk further, you can launch a franchise company; franchises are simpler to run and have a lower risk.
This comes down to services or products that clients can’t live without. You can launch franchises that are stable and thrive in a recession. You can launch resilient franchises in senior care, cleaning, home services, or food and drink.
Fusion Franchising can assist you in finding your next great investment. Contact us now.