When you’re young, your finances can bounce back from a market downturn. You have plenty of earning years left and more time to watch your investments recover. With time on your side, you can be patient and wait for your assets to regain their value after a recession if you want to recalibrate your portfolio.
Understanding that after every market crash, the recovery has left investors richer than they were in the beginning is crucial for young investors getting over their fear of the stock market. But it’s not necessarily true that young investors can afford to lose money.
Investors often say, “big risk, big reward.” It almost sounds as if the “big reward” is inevitable – and if the risks really are high, there is a bigger chance you can lose your initial capital. High-risk investments often lead to sub-par returns and losses, hence the risk, and you are effectively gambling if you expect otherwise.
With another economic downturn expected soon, young investors who likely did not have anything on the line during the 2008 crash may not be fully aware of the risks. They should be coming up with a plan to weather the recession.
Is it possible to build a recession-proof portfolio? There isn’t a one-size fits all solution, but as the economy begins to shift, it pays to shift the way your portfolio is distributed. You will want to cash in some of your high-risk, high-volatility assets and reinvest in those assets that make good recession hedges. In case you’re not familiar with these conservative assets, here are a few to keep in mind:
Gold should be one of the first investments you consider making during a recession. Gold prices tend to benefit from volatility. Before you invest, it is important to know the price of gold and make sure you’re buying gold close to spot prices.
Gold bullion in the form of gold bars and gold coins are always superior to gold ETFs, which are susceptible to fraud and mismanagement. Physical gold coins are relatively easy to store as well, especially in comparison to less-valuable metals like silver that will inevitably take up more space.
#2 Real Estate
As a young investor, buying property is probably still out of reach. It may even be your investment goal. You may want to consider investing in a publicly traded REIT (Real Estate Investment Trust) that can generate rental income or interest payments. Owning stock in a REIT means you own a portion of the real estate that the company owns. REITs are also a great investment in the low-interest environment that typically accompanies a recession.
#3 Dividend-Paying Stocks
Established companies often don’t see huge stock growth, but they can be great places to invest if you want to keep your money on the market and earning dividends. Blue chip stocks like Coca-Cola, Pfizer, and PepsiCo offer great dividends and share buybacks, so they can continue to generate income when other sources dry up.
If you’re a first-time investor, don’t let downturn fears stop you from investing. Whether you want to become wealthy or just prepare for your retirement, you need to invest. Make sure your investments are smart for the current economy.