Creating wealth during a recession can be an intimidating prospect; while market volatility can be unnerving, it can also create unique opportunities for savvy investors. A recession is, in a way, a natural part of any economic cycle. The trick is to look for opportunities to invest wisely and keep your money safe despite looming economic uncertainty.
Whether you’re already an established investor or just getting your feet wet, here are some ideas for how to create wealth during a recession.
1. Have a Financial Plan.
Before taking any steps towards creating wealth during a recession, it’s important to have a financial plan in place. A financial plan will identify your financial goals and help you create a budget and allocate your resources accordingly. A plan should include your retirement plan, your insurance policy, and any investments you are considering.
2. Determine Your Risk Tolerance.
Part of having a financial plan is to determine the best strategy to reach your goals and minimize your risk. If you’re looking to create wealth during a recession, you may need to take a riskier approach than usual. Consider your goals and the amount of risk you are willing to accept. That will help determine which investments might be a good fit.
3. Focus on Quality
When creating wealth during a recession, it can be tempting to race to the bottom in order to try and get the best deals. But often times, low quality investments come with greater risks and may not be worth the potential rewards. Instead, seek out quality investments and diversify your portfolio.
4. Stick to Cash and Short-Term Instruments
When creating wealth during a recession, it’s important to maintain liquidity and limit exposure to long-term and volatile investments. Stick to cash, short-term investments like bonds and money markets, and stocks of companies with strong balance sheets and larger market capitalizations.
5. Invest in defensive stocks
Investing in defensive stocks can be a great way to create wealth during a recession. Defensive stocks are typically higher quality stocks of companies that are well capitalized and have strong balance sheets. These companies are less likely to be affected by economic downturns and can provide stability and potential upside during a recession.
6. Invest in Index Funds or Exchange Traded Funds
Index funds and exchange-traded funds (ETFs) provide a great way to diversify a portfolio and create wealth during a recession. Unlike investing in individual stocks, index funds and ETFs provide diversification and allow investors to track the performance of an entire stock market or a sector, instead of the performance of an individual company.
7. Look for Value in Real Estate
Real estate is another potential avenue for creating wealth during a recession. You can invest in real estate directly by purchasing property, or you can invest in real estate-related investments such as closed-end funds. Look for opportunities to invest in properties that may be undervalued and have appreciation potential in the future.
8. Focus on Building Your Skill Set
Recessions present a great opportunity to learn new skills and make yourself more marketable. Taking the time to upgrade your skillset and invest in your future can help you land a higher paying job and create wealth. Plus, there are plenty of online learning opportunities available, so you can learn at your own pace.
9. Spend Wisely
When investing during a recession, it’s also important to remember to spend wisely. Instead of splurging on luxury items and adding to your debt, focus on investing in your future financial security. You may want to look for deals or use coupons to get the most bang for your buck for items you need.
10. Utilize Compounding
Compounding is a powerful way to create wealth during a recession. Compounding allows you to grow your money faster by reinvesting your returns. The longer you can leave your money in a compounding investment, the more you can maximize your returns.
Creating wealth during a recession can be a daunting task. But with the right investments and financial planning, you can make wise investments and still create wealth despite looming economic uncertainty. A well diversified portfolio could include a mix of defensive stocks, bonds, and ETFs, as well as real estate and cash. Don’t forget to focus on building your skillset, and remember to spend wisely. By leveraging compounding and staying agile, you can position yourself to be positioned for future gains.