Market recessions commonly involve a mix of return and risk. While recessions may diminish the value of an investment portfolio, they also present an opportunity to profit from cheap assets. In the majority of the cases, market losses are simply temporary. Therefore, well-informed investors can capitalize on the situation, and the positive growth prospects of an economy when it recovers. As Kavan Choksi UAE says, investors should try to implement techniques that help in safeguarding their portfolio from major losses, while also positioning them to effectively capitalize on upcoming opportunities.
Kavan Choksi UAE marks the investment approach to follow in a recession
Investors should ideally avoid investing in highly leveraged, cyclical, or speculative companies during a recession, along with companies posing a greater risk of doing poorly during tough economic times. It would be better to invest in well-managed companies that have strong balance sheets, good cash flow and low debt. Counter-cyclical stocks generally fare well in a recession, as well as experience price appreciation despite the prevailing economic headwinds. There are a few industries that are known to be recession-resistant than others, like discount retailers, consumer staples and utilities.
Diversification is among the simplest yet efficient risk reduction techniques to follow in a recession. Investors can lower the impact of a market downturn on any single area by diversifying their funds across multiple asset classes, like equities, bonds, real estate, and commodities. Diversification helps make sure that in case one component of the investment portfolio under-performs, the other areas are likely to stay constant or even outperform. This would go a long way in mitigating the overall impact.
During times of economic instability, investors should try to shift their asset allocation to more defensive investments in order to safeguard their portfolios. Defensive assets like gold, cash and bonds are known to have a lower correlation with the stock market and therefore may serve as a hedge against volatility. Reallocation of a portion of the portfolio to defensive assets would lower the risk involved and help maintain portfolio balance during difficult times.
A smart investment strategy to follow during recessions is to find a stock of companies that manage to maintain strong balance sheets or steady business models despite the economic headwinds. Investing in utility companies, basic consumer goods conglomerates, and defense stocks can especially be a good idea. Many investors add exposure to these groups in their portfolios when anticipating weakening economic conditions. Studying the financial reports of a company would help an investor to determine whether they have low debt, healthy cash flows, and are generating a profit. All of these factors are important to take into account before making an investment.
As per Kavan Choksi UAE, once the economy seems to move from recession to recovery, it would be time for the investors to readjust their strategies. Such an environment tends to be marked by low interest rates and rising growth. The best performers in this situation would be highly leveraged, cyclical, and speculative companies that survived the recession. When economic conditions normalize, these companies are likely to be the first to bounce back.
