If you are here to find out what stocks to invest in during a recession, what trade to make, what assets to acquire or how to monitor the market, then I suggest you exit this article right now. I will be talking about those as well, however, this post is a detailed insight on how to make the best use of your time and resources during a recession.
1) Invest time in a business
People believe that the economic slowdown caused by COVID 19 will lead to a global recession. However, if you look at history, during an economic downturn, there is often a rise in entrepreneurship due to people taking steps to create their own opportunities. The state of the economy does not affect startups or early businesses on a large scale. Therefore, invest your time and make use of available resources to launch your startup. Not only will you help yourself, but you will also help improve the economy.
Why a recession is a great time to launch a startup
Startups by nature are lean, which is why they find it easier to navigate through a crisis and adapt accordingly. Recessions create opportunities for entrepreneurs which is why they are a great time to launch a startup. A myriad of problems are born and brought into view, and as startups at core are problem solvers, it is a match made in heaven.
Moreover, recession enables you to obtain assets and services at a really low cost. Even loans and lines of credit are offered at a really low-interest rate. Above all, with a rise in unemployment, you can attract and hire talented people at a bargain price. These are great opportunities for a startup to have. You can easily take advantage of them to launch and grow your startup during a recession.
Lastly, if you make it through the recession and prove your startup, you will find it easier to obtain funding. Once the market stabilizes, investors look towards investing their money outside public markets. Which is they turn towards proven startups still in the early stages.
Also Read: How to start a startup
Famous startups founded during a recession
As further proof why a recession is a great time to launch a startup, take a look at the top 10 successful startups founded during a recession. They not only made great startup success stories but also went on to become unicorn startups.
- Microsoft (1975)
- Apple (1975, 2001)
- Groupon (2008)
- Airbnb (2008)
- Whatsapp (2009)
- Mailchimp (2009)
- Uber (2009)
- Slack (2009)
- Instagram (2010)
- Pinterest (2010)
2) Invest in industries that thrive during recession
The global economy is collapsing due to the crisis brought by COVID 19. It is not possible to identify what areas will do well moving forwards. However, we can look at history and identify industries that do well during a recession.
This is a very important sector to invest in during a recession. Health care is one of the essential industries. The reason why it is thriving even during a recession is obvious. Health care is an essential part of life, you simply can not miss out on it even with a decline in income. Therefore, you should analyze health care stocks, and invest in ones with low debt-to-equity ratios.
Similar to health care, food is an essential industry. People can not afford to live without it, no matter how low the income is. You can switch to cheaper alternatives but not miss out on it entirely. It is a necessity, not a luxury. Also, when times get better, the food industry has the opportunity to outperform itself with the increase in demand. Therefore, the industry might be a good pick to invest in. You could get good returns.
Ecommerce is booming right now. Giant Amazon is the prime example of companies that have thrived during COVID 19. The company registered a 26% increase in sales. Physical stores shut down due to increased costs and running expenses, which leads to an increase in demand for online retail. Therefore, you should really consider investing in e-commerce if a recession were to come now.
Biotech companies are on the rise due to the outbreak of COVID 19. These have high potential to grow massively. Making investments right now in this sector has the potential of giving massive returns later.
However, it is important to remember that each recession is different, hence so will the stocks that perform well during them. Also, remember that stocks and companies that do well during a recession might not perform the same way after the economy recovers. So always adapt to the times, and make your strategy accordingly.
3) Invest in Reliable Dividend Stocks
Investing in dividend stocks is a really good way to generate passive income. Look for companies with low debt-to-equity ratio and good balance sheets. Also, find out companies that regularly pay dividends and have increased their payouts in the past years.
4) Real Estate
If you take a look at the 2008 recession, you will see that the real estate investors saw massive gains. This is a because when a recession hits, the value of properties drop which is a great investment opportunity. Investing during a recession You can rent out the property and generate a passive income while the recession is around. Once the times are better and value for it rises, you can sell it for a higher profit.
5) Invest in yourself
Lastly, on the topic of what to invest in during a recession, the most important investment is the one in yourself. Gain more knowledge, add skills or refine existing ones. Make sure when an opportunity comes knocking on the door, you are ready to jump on it. Moreover, a recession can be mentally draining and exhausting. Make sure you indulge in therapeutic activities that keep your mind and body healthy and fresh. This way you will be able to focus more and make better decisions.
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