This means you can benefit from your investments even during a recession

• Investing in a downturn: portfolio diversification
• Bargains on the stock or real estate market
• Recession partly already priced into stock valuation

Darius McDermott of Chelsea Financial Services points out in an interview with Forbes magazine that stock markets are running ahead of the economic situation: They fell in advance of a recession and then recovered much more quickly. It is therefore important to find the right time to invest in order to be well positioned when a recession subsides. The expert recommends that investors choose a long-term investment horizon because: “Recessions are part of the normal economic cycle. Long-term investors hope that they already have a diversified portfolio when they go into a recession,” says McDermott.

Defensive investing in the stock market

A bear market can be a good entry point into the stock market for bargain hunters. The S&P 500 temporarily fell by 20 percent last year, and the price-earnings ratio (P/E) of DAX securities fell above average in 2022. Commerzbank strategist Andreas Hürkamp told the Handelsblatt: “The P/E ratio for the DAX has fallen from 18 to ten in the past few quarters and is therefore at a level that was observed in 2003, 2009 and 2020 at the end of a bear market.” This indicates a possible undervaluation of the shares in relation to their profit potential. However, caution is advised here, as this only applies if the companies also make corresponding profits in 2023. However, rising costs and the effects of a recession depend on the industry.

In times of downturn, experts advise turning to defensive sectors – these include manufacturers of consumer goods for everyday use (such as food), financial services, personal care products or utilities, but also insurance companies and the like Pharmaceutical industry. “Stocks with pricing power are broadly a hedge against inflation,” Lazard fund manager Beatrix Ewert told Forbes.

Moneywise points out that Warren Buffett’s Berkshire Hathaway, for example, invested in The Kraft Heinz Company shares and securities of the energy supplier NRG Energy during the 2008 recession and benefited significantly from them (at least initially).

property

The real estate market can present a good investment opportunity during a recession. Falling real estate prices promise a good opportunity to get started. But the same applies here: if interest rates continue to rise, the calculation won’t add up. A still tight one monetary policy of central banks could slow down an upward trend in the real estate market. Because rising interest rates eat up any potential advantage of a falling property price. Only when the central banks stop raising or even lowering their key interest rates will real estate loans become of interest to investors again – apart from bargains. However, whether this will be the case in the next few months remains to be seen.

Gold and bonds as safe havens?

Gold has always been considered a “safe haven” and nothing has changed. The port’s image was apt, said Hal Cook, senior investment analyst at Hargreaves Lansdown, as investors often dumped risky assets to seek refuge in gold. Cash, on the other hand, loses value in an inflationary environment, according to the expert.

The situation could soon take a turn for the better for bonds. Although they suffered from rising interest rates, yields had already risen above average. When the central banks loosen their tight monetary policy, bond prices even rose, which is why it could be worthwhile to get involved at the moment.

Less competition as an argument for starting a business

According to moneywise, Charles Gaudet, CEO of a coaching agency, is convinced that a recession also offers opportunities for new companies: “Now is the right time to benefit from an open field. Competitors are withdrawing and spending less money on marketing and advertising out of.” Many companies are currently forced to lay off employees and hope to survive the crisis. This is not a bad starting point for repositioning yourself on the market, as the competition is clearly under pressure.

Editorial team finanzen.net

This text is for informational purposes only and does not constitute an investment recommendation. finanzen.net GmbH excludes any claims for recourse.

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