Best investments during a recession.


Best investments during a recession


Five best investments during a recession to limit your losses. It’s a possible outcome if you know where to look. Recently, all hell broke loose, and we found ourselves getting hit with a health crisis but also an economic crisis. Officially, a recession is when the country’s gross domestic product decreases for two straight quarters.

Even with all these uncertainties, many opportunities lie ahead. Let’s find them together.


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Best investments during a recession. Advice#1

Stay at least 50% invested.

When there’s a quick drop in the stock market, the investor usually reacts in one of two ways. He will fight or retreat. It’s the same problem one faces when he finds himself in a dangerous and uncertain situation. In terms of investments, the investor who fights will keep his stocks and try to weather the storm. On the other hand, the one who flees will sell his shares quite rapidly.

Understand that you need to draw a line in the sand where you’ll sell no matter the cost. During a recession, it’s even more critical to establish such a strategy. Selling after a considerable drop in the price is not the hardest part, nor is it the wisest thing to do. The problem arises when it’s time to reenter the market.

There’s a muscle memory trigger when you lose money on the stock market. When the market has reached its bottom, and it’s time to reinvest, there’s usually a disbelief that ensues. After that, a new rally starts, and you miss the opportunity because you got burned on the last drop. The cycle then continues, and you reenter when the markets are reaching new highs, slightly before a further percentage decreases.

To avoid such a vicious cycle, always remain at least 50% invested in the market. If you miss the next rally, it won’t matter as much because you still have money working for you.

Key Takeaways

  1. At all times remain at least 50% invested in the stock market. You will avoid FOMO “sucker” losing cycle.
  2. Invest in Real Estate. A recession typically decreases the demand for investment properties. Remember the adage, buy low and sell high?
  3. Buy secure, boring bonds. When there’s a recession, financial institutions make a run for these safe, boring bonds hence increasing their prices.
  4. Buy dividend stocks—a logical continuation to the previous point. During a recession, financial institutions are starving for shares that distribute a sound dividend. Be like them and go on the hunt for the same thing.
  5. Treasury bonds. The safest investment in Canada or the risk-free bond as it’s often called.

Related article: Stock markets and Coronavirus: 3 powerful  Stocks ready to launch

Best investments during a recession. Advice#2

Real Estate

Financial institutions do not dislike risk; they despise it. If you ever wondered why your credit report is so important to banks, it’s because they use it as a risk measurement tool. The higher your credit score, the more money they will lend you and vice versa.

If you manage your money well and have sufficient funds, an investment property is a beautiful, productive asset to have, especially during a recession.

The key is to buy a property with the most tenants possible. It dramatically reduces the risk of defaults if one or a few tenants have problems with their rent. Reduction of risks is a word that will sound like music to your lenders’ ears.

You need to be financially viable or at least have irreproachable credit because, during a recession, institutions tighten their lending requirements.

Related article: Residential mortgage rates today and how to beat the banks.

Best investments during a recession. Advice#3

Secure, boring municipal bonds

Since the Great Depression of the 1930s, when the central government more or less spent a fortune in infrastructure, it created a precedent. When times get tough, and municipalities find themselves in a bind, they can generally count on the graces of the federal or provincial government to invest in infrastructure projects to keep its citizens employed.

How does that translate into a secure municipal bond, you ask? The solvency of these municipalities is ultimately the responsibility of the provincial or the federal government. Like many other bonds, you collect either a monthly or semi-annual coupon or payment.

Instead of scouring through thousands of municipal bonds, you can buy a fund like the Nuveen Preferred and Income securities fund that specializes in municipal bonds(NVG). Let the experts work for you.

Best investments during a recession. Advice#4

Dividend machines

Reliable stocks that pay a high dividend regardless of the market volatility are a rare gem. Buy these as soon as possible because, during a market downturn, large institutions flock towards them and help keep their prices stable.

Consumer goods stocks are commonly in hot demand when the market volatility starts rising, and investors look for security, and high dividends. These stocks are part of a category called staples goods. Despite the market sentiment or coronavirus, people will still consume food like wheat, milk and other necessary produce.

Such a stock is MRU.TO or Metro inc. Here’s a snapshot of the last two months.



Compare this graphic to what the overall market did. Unsurprisingly, the market swayed more than Metro the grocer.



Best investments during a recession. Advice#5

Treasury bonds

Canadian government bonds are the safest investment vehicle in Canada. They do not give much interest revenue; nevertheless, since the objective is to safeguard our investments during a recession, it is a must-have in any adverse risk portfolio.

Related article: How do you calculate interest rates and how it can make you rich.

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