September 7, 2018

A Simple Investment Strategy for a Recession

Here is a simple investment strategy for a recession

(Look further down for supporting information and TV interview regarding a recession)

  1. Do not panic or make knee jerk decisions. Speak to your financial advisor first.
  2. Keep your debit orders going. This powerful strategy will result in you acquiring additional units at much cheaper prices (because of the falling market) and profiting when the units/shares rise in value again.
  3. Do not sell your investments if you don’t have too. Once you sell, you realise an actual  loss. If you stay invested during a recession you effectively only suffer a “paper loss” during the time it takes to recover. If you are very worried about the fund/s you are in you can always switch to alternative funds that may perform better during a recession.There are 3 switch strategies you may consider;
  1. Switch to dividend paying ETFs.  If you are going to hold ETFs during a recessionary period, the best ones to own are from established, large-cap companies with strong balance sheets and cash flows. Not only do these companies do much better during economic downturns than companies carrying a lot of debt with poor cash flows, but they are also more likely to pay dividends. For investors, dividends serve a couple of purposes. First, if a company has a long history of paying and increasing dividends, you can have more peace of mind that it is financially sound and can weather any economic environment. Second, dividends provide a return cushion. Even as share prices decline, you still receive a return on your investment. It is for these reasons that dividend ETFs tend to outperform non dividend ETFs during market downturns.
  2. Switch to Consumer Staples – like Industrial ETFs that own food, pharmaceutical, telephone, health & hygiene and tobacco.
  3. Switch to International ETFs – this counteracts the expected poor returns from domestic markets and poor currency.

The best way to be prepared for any down turn (and up turn for that matter) is to be fully diversified across all the major asset classes at all times. This ensures that your portfolio is always positioned to deal with rising and falling markets. The best way to achieve this is to own a multi asset index tracking fund from Itransact.

Click here for more information about our index tracking funds

Click here to watch a TV interview with Itransact about this simple strategy for a recession