How to make money during recession?
When the market is falling, generally most investors start thinking how to gain on it and where to invest money. Of course, a recession raises negative feelings as it always goes along with economic problems such as high unemployment, pay cuts and reduced economic activity. As a result, prices of most assets drop significantly and everybody gets confused. You may think that it’s the worst time for investments and make a mistake. There are always chances to pick a good thing at the market.
Use new opportunities
Nothing is black and white. The truth is: after any slump, there will be a rebound. As a result, thoughtful investors know that any market crash may offer a chance to increase capital. First, you will need the sufficient amount of capital. A smart person always sets something aside for investments – and does it on the regular basis to be prepared to act when the opportunity arises. Second, you can buy underpriced assets that will boost your returns in the long run. Finally, you can invest in high-potential assets. For example, e-commerce, delivery, cloud and pharmaceutical stocks rose during the current crisis because of the stay-at-home regime. Check the stock updates where we cover the most promising companies you can trade with FBS. In addition, strategists developed several rules to get profit during the economic downturn presented below.
Stick to dollar-cost average (DCA)
The idea of this concept is quite simple: to either invest systematically a fixed amount of funds or acquire a fixed number of share units at predetermined intervals. In other words, you buy smaller amounts for a longer period instead of putting an immense sum at stake at once. It is helpful for inexperienced investors as it doesn’t allow emotions to influence your decisions and thus reduces risks. Risk and money management are increasingly important during market crashes. Follow these steps:
- Decide exactly how much money you can afford to invest consistently over a long period of time.
- Choose an asset or group of assets that you want to trade for the long-term.
- Invest in the chosen asset at regular intervals.
It’s clear that such an approach requires self-discipline and self-organization. You will need to be consistent. Make sure you set up a system that works for you: use automatic reminders or make an agreement with a friend to check up on each other.
Rebalance your portfolio
Even if at one point your portfolio seems perfect, that doesn’t mean that it will stay so with the course of time. The market changes and so should your investments. Hence, remember to rebalance your portfolio from time to time. This process involves periodically buying or selling assets to maintain an original or desired level of asset allocation or risk. The best way to reduce risk and at the same time maximize returns is to diversify. For example, you decided that your portfolio would have 50% stocks and 50% bonds (a wise and balance choice). The stock weighing can decrease during a recession. What should an investor do? Sell bonds and buy stocks to return to your original target allocation. When the economy picks up, stocks will drive up the value of your portfolio.
Invest before and during recession
Indeed, there are a lot of financial assets that have different characteristics. A smart combination of those will lead you to success. Remember that the stock market is a forward-looking mechanism and economic reports are backward-looking. As a result, stocks usually fall before a recession and recover almost always before the official way out of it. Gold, on the contrary, tends to rise in times of the market uncertainty and fall during the economic growth. Safe-haven currencies are also likely to jump when the market sentiment is risk-averse.
Be a trader
Investing is about the future. It’s surely an important financial activity, but not the only one. Trading is a way to profit from the short-term market moves and there are plenty of those during a recession. Speaking of stocks, trading allows making profit on both rises and falls. A stock is falling? CFDs will let you benefit from a sell trade. Good news or bad news – it makes no difference: analyze the chart, read the news and go ahead. As for currency pairs, when one currency strengthens, another goes down. You just need to determine a trend – bullish or bearish – and join in. A recession is not exactly a bad time to be a trader. Quite the opposite, it creates great opportunities to make profit.