Recession Proof Investing

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You would be forgiven for thinking buy and hold investing is not all that great given the last decade’s sideways range (albeit a big range). The reality is buy and hold does work but you need to be buying consistently through out your life time and, as we all know, you need to be re investing your dividends. This will allow you to average out your loses during market dips. This means buying in a market decline is important. So you do not want to be afraid to invest during a downturn but what is the best way to go about it?

At times like these you need to think slightly more out of the box and you will need to diversify more than usual.

Here are some tips to help you get investing smartly during a recession.

Commodities

Commodities are a great way to benefit from a downturn. Although they are volatile, they are usually inflationary during
recessions and you can benefit from this. Keep it simple. If you are not keen on buying commodity futures like oil or precious metals directly you can invest in funds that do or you can buy physical gold or invest in timber farms/forests.

“Timber has consistently and significantly outperformed the S&P since 1987, according to the National Council of Real Estate Investment Fiduciaries (NCREIF). In the past 20 years, the timber index has produced average annual returns of more than 15 percent, compared with less than 12 percent for the S&P.”

Real Estate/Property

Quite logical really. Property has dropped but 30-50% in most of the western world. Suddenly rental income produces a much better return on investment than they did 3 years ago. Naturally, prices can continue to fall but if you purchase a sensible property in a sensible location you should be able to profit nicely in the long run whilst also getting a little rental income along the way.

Fx/Foreign Exchange

Another logical solution. Whilst the Euro becomes less favorable other currencies like the Swiss Franc start to rise as people look for a safe haven. There is no reason you can not profit from these moves in currencies. There are many ways to purchase other currencies but just watch out for charges for exchange as you do not want this to eat into any profit.

Manage Your Current Equity Portfolio Correctly

Don’t forget to look after what you already have. Keep solid performers that pay dividends. Don’t be afraid to get rid of stocks that you always say “this stock has never gone anywhere”. Don’t hold unless it has done something for you in the past or is doing something for you now.

Consider new purchases. Think long term. Spread your capital a little and you should be alright. Consider unit trusts, open ended investment companies and Exchange Traded Funds. These are excellent ways to spread your risk. It is easy to find and compare funds and you can evaluate the performance of the fund manager to make sure you know exactly who is managing your money. Choose a fund with a good reputation and one that is liquid, so you can get out of the fund easily (if choosing an EFT).

One Response

  1. Louie says:

    Foreign exchange or Forex is a great way to recession proof yourself. It is definitely a great home based business if that is what you are looking for.

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