Even those with a fairly bullish outlook about the stock markets are beginning to accept that there will be some kind of recession. The question is what kind — shallow or deep, a full-bore recession or a milder downturn?
Let’s dive into the considerations of reducing the risks associated with recession and economic decline.
Recession fears are mounting, but you don’t need to be scared if you have a plan
First, let’s define what recession means.
A recession is a significant, widespread, and prolonged downturn in economic activity. It typically produces declines in economic output, consumer demand, and employment.
The biggest culprit for this scenario is the runaway inflation in Western countries and the aggressive central bank actions aimed at taming it.
A popular rule of thumb is that two consecutive quarters of decline in the GDP constitute a recession. But is the current situation what economists call a recession? Both yes and no.
For now, the economy is coping with the turmoil. We are not seeing the destructive force of the economic crisis as we did in 2008. The major banks are resilient, the stock market remains volatile, but fairly stable.
Nevertheless, the recession is most likely to worsen in 2023. Accordingly, now is the time to prepare for it. That is exactly what the whales of Wall Street are doing.
What is the recession-proof investment plan?
Investing and trading activities carry significant risks, as there is no guaranteed way to fully protect yourself from losing trades or the risk of losing part of your portfolio.
Nevertheless, we have selected several things you can do with your stock portfolio to reduce risk in times of economic uncertainty.
Buying in a bear market can pay off
If you look at publicly traded data, you’ll see that whales like Warren Buffett are buying stocks during a downtrend. This is one of the trading strategies for adding to an investment portfolio in a bear market. After all, it’s a good opportunity to replenish assets with stocks at a better price than at the peak.
However, keep in mind that this technique is relevant only for trading with real stocks, and it also carries risks, because some stocks may not go up in price afterwards.
Essentials stocks might be more promising
The period of COVID-19 pandemic showed that the biggest profits are made by sellers of necessities: food, clothing, and medicine. Accordingly, the retail giants grew many times over, as did some tech companies. At the present time, in the first place are still producers of necessities, as well as energy companies. They are making super profits on the back of rising energy prices. Take this into account when building your investment portfolio to make it more stable.
Gold and other safe-haven assets might partially mitigate risks
As a refuge from volatile financial assets, many investors may be considering holding more money in corporate bonds or conservative assets. For example, gold is seen as a hedge against inflation due to its inherent value and because its performance is not tied to stock markets.
Let your trade short and long
When you’re not feeling certain about a market rising, you could always try to make a profit when it’s falling. How?
CFD, or Contract for Difference, trading is defined as “the buying and selling”. CFDs are a derivative product because they enable you to speculate on financial markets such as shares, forex, indices and commodities without having to take ownership of the underlying assets.
One of the main benefits of CFD trading is that you can speculate on price movements in either direction, with the profit or loss you make depending on the extent to which your forecast is correct.
NAGA provides a flexible choice of instruments and assets for CFD trading. This is an alternative to traditional investing in real stocks, which doesn’t concern itself with gradual growth. Instead, CFDs can be considered as a lot more short term investments than real stocks.
Summary
- Even the stock market bulls are beginning to accept that there will be some kind of recession.
- But don’t fret, there are several things you can do with your stock investments to potentially reduce risk in times of economic uncertainty.
- Some of the common methods tend to be buying stocks while their prices are lower, investing in stocks of companies that produce necessities, and, of course, shorting the stock market.
- How or if you choose to hedge your investments depends entirely on your risk appetite. NAGA is here to accommodate whatever you choose to do 🌶️
