How to Protect Your Investments from a Recession

How to Protect Your Investments
from a Recession
By www.ProfitableInvestingTips.com

http://profitableinvestingtips.com/bond-investing/how-to-protect-your-investments-from-a-recession
The trade war shows signs of
becoming long term and it is taking
its first bite out of Chinese
manufacturing.

Many economists are predicting a
global recession in the coming year
and in this interconnected world the
USA will not be immune.

The question is how to protect your
investments from a recession.

How to Protect Your
Investments from a
Recession

The first choice in protecting your
investing capital is to convert to
cash or cash equivalents such as
we mentioned in our article
about how to invest without
losing any money.

US bank accounts are protected by
Federal Deposit Insurance and both
US Treasuries and Grade AAA or
AA corporate bonds are safe bets.

You will have to do with a lower rate
of return than in a surging stock
market.

But, considering that the market will
fall during a recession, this is a
good way to preserve investment
capital until the market stabilizes.

If you are going to stay invested in
the stock market you need to look
carefully at the intrinsic stock
value of each of your investments.

For a long term investor committed
to staying in the market, the
concern is not if your stock falls by
twenty percent in the coming year
bur rather if it stays there instead of
resuming its growth in the years
that follow.

Coca Cola

Long Term Investment
Trends and Concerns

The Western markets were
spooked this morning after Asian
markets fell due to reports of a
significant Chinese manufacturing
slowdown.

Markets tend to ingest such info
and jump up and down.

The underlying concern is that
China’s growth will, in fact slow
down.

The USA does not sell all that much
to China so a Chinese recession on
the face of it would not be a
problem for the USA.

But, China has a huge
manufacturing sector that draws
raw materials from all across the
world.

The slowdown of Chinese
manufacturing will affect emerging
markets in every corner of the
world.

That, in turn, will reduce demand of
US products in these markets as
there will be less money to spend
and less credit to help with
purchases.

China has had a spectacular rise
over the last forty years or so.

Its rise has been comparable to that
of the USA after the US Civil War
and into the 20th Century.

Or, taking an Asian example or two,
China’s rise has been comparable
to that of Japan, Taiwan, or South
Korea after the Second World War.

All of these economies came to a
point where they needed to
liberalize central control to keep
growing.

It may not be possible for the
Chinese Communist Party to do this
and retain control.

The downside for China is its huge
and increasing debt and we only
need to think of Japan around 1990
to realize how that might turn out.

Over the long term China will not be
able to grow at the rate it had been
and will not be able to keep taking
on debt to fuel its expansion.

As such, any investment linked to
the China manufacturing miracle is
likely to slow down or even reverse.

US Debt Burden

The Trump tax cuts provided a nice
boost to the US economy.

However, that stimulus is running
out and in the end has simply
added to the mounting US national
debt.

We recently asked how will higher
interest rates affect your
investments.

Considering that the USA will likely
need to pay higher interest rates
over the long term to finance a
mounting national debt, this is good
question to consider.

The USA is in dire need
to infrastructure
investments which may or may not
come to be.

The backbone of US transportation
is the composite of US railroads,
highways, airports, bridges,
waterways, and ports.

If these are not kept up the US
economy will suffer over the long
term and any investments needing
these facilities will suffer.

With an increasing amount of
available money going to pay off
the national debt there will be less
available for investment in any and
all business and financial
endeavors.

What Investments Will
Continue to Grow in a
Prolonged Recession?

Investopedia writes
about investment portfolio
strategy in a recession.

Recessions are characterized by
faltering confidence on the part of
consumers and businesses,
weakening employment, falling real
incomes, and weakening sales and
production-not exactly the
environment that would lead to
higher stock prices or a sunny
outlook on stocks.

As they relate to the market,
recessions tend to lead to
heightened risk aversion on the part
of investors and a subsequent flight
to safety.

On the bright side, however,
recessions predictably give way to
recoveries sooner or later.

We commonly suggest an
assessment of intrinsic stock value
for picking, holding, or selling
stocks.

This is especially true when
recession looms.

The best and safest companies to
invest in during a recession are
those that have weathered many
before.

Companies with decades in
business, strong balance sheets,
and a history of paying dividends
year in and year out including
during recessions are good picks.

Low debt, products that sell in good
times and bad, and healthy
dividends are all how to protect
your investments from a recession.

Years ago we wrote
about investing in beer.

It is true that in bad times we drink
beer to drown our sorrows and in
good times we lift a glass, or two, of
beer to celebrate.

Likewise, households use dish
soap, shampoo, laundry soap, and
other necessities in good times and
bad.

Pharmaceutical companies typically
survive economic slumps and
companies with highly diversified
product lines like Johnson &
Johnson will be around after the
next recession has come and gone.

And McDonalds will be selling
hamburgers forever.

McDonalds

Growth during a
Recession

Not all companies need to hunker
down and tighten their belts during
a recession.

There will always be companies in
biotech or other tech areas that
develop a new product or service
and grow substantially while the
rest of the economy is shrinking.

If you have the insights and skills to
pick such investments they should
represent a small part of your
portfolio even during the darkest
days of a recession.

How to Protect Your Investments from a Recession

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How to Protect Your Investments from a Recession