Investment Options: Recession Proof Investments

Free Video Series Reveals How To Launch Recession Proof Income Streams From Scratch

Acting knowledgeably, both during good times and bad, is essential for building long-term wealth. You must not make the mistake of delaying your start to financial success because of current conditions.

In fact, recessions often provide excellent opportunities for knowledgeable and astute investors.

For instance, you will achieve much greater returns buying closed-end companies (US), Investment Trusts (UK) or listed investment companies (Australia), when they are at or near their lowest market price. This is often during a recession, when stock exchange prices are depressed. As the prices of these investments are based on a valuation of the stocks / shares they hold, with a discount, lower stock market prices are automatically reflected in the price of these collective investments.

In a recession it is often wise to take the alternative view compared to being a sheep and following the crowd. Buying in a recession when prices are low is better for a long term strategy than buying during a boom. This is because the price of the investment is related to the underlying prices of the shares (stocks) in which they, in turn, are invested.

The one thing that you must learn is that individual investors, as well as markets, always react to extremes of both optimism and pessimism. If you remember that things are never as good, or as bad as they appear, then you can take advantage of opportunities that present themselves. You will be investing where others have not appreciated the opportunity - yet!

Gauge the mood of the moment in order to determine whether to move into or out of shares (stocks), into or out of precious metals, into or out of property, and so on and so on. Use your own feelings about the mood of 'the market': does it seem to you that people are more optimistic, or more pessimistic, about where a market is moving.

As the mood changes positively, then is the time to invest.

If the mood changes negatively, then is the time to sell.

Remember also that it is better to take a reasonable profit than to try to eke out every little percentage point of gain. Nobody is able to predict exactly when the top of a market has arrived. Nobody obtains the most profit possible, consistently. Nobody can predict exactly when a market has bottomed out.

In general terms, market highs and market lows can be estimated. Again, by gauging the mood of the market, one can invest just before or just after the low point, or divest just before or just after the high point. It is better to invest just before the low point, and divest just before the high point, as being too late may mean you are left behind and lose what you have gained.

Wise advice is to act too soon!

Sell too soon in order to pre-empt the crowd.

Buy too soon for the same reason.

In either case you give up a little of the profit or potential profit, but in doing so you ensure you do not lose out on an even greater potential profit. Running with the crowd decreases potential profit. Being at the head of the crowd, leading the way, maximises long term wealth creation.

Take the meaning from something a wealthy investor (Rothchild) once said: 

"I always sold too soon."

What he meant was that he made his fortune by not holding out to the last minute to eke out the last drop of profit. He sold once he had made his margin and saw that the market was getting close to a turning (or tipping) point. You would do well to do the same.

It is not rocket science to say that the many investors sell when a recession hits. It would of course have been better to sell before the recession hit, but that is for you to know.

It is also the mentality of the herd that says that investing in a recession is not the best time.

It is not the best time for certain investments, if the recession is deepening. However, there are still opportunities that can be taken advantage of. There is opportunity with all types of investment. However, there are types of investment that do come good when recession strikes.

In recent times you will no doubt be aware that precious metals, gold and silver especially, have risen substantially over the past few years. It seems that new highs are achieved almost daily. This is a flight to intrinsic value.

The gold price fluctuates against the perceived value of certain currencies: the dollar in particular. When the dollar is perceived to have less purchasing power, then the price of gold increases. Buying precious metals at the beginning of the recessionary cycle would have seen huge profits for those that invested then. Now maybe, with recession seemingly coming to an end, gold is less likely to show great upswings, unless fiat money (paper money) shows weak confidence.

Property is another example where getting in at the right time within a recessionary cycle could prove very beneficial, monetarily.

I have already mentioned closed-end investments. There are other stocks and shares investments that should be considered, especially those that show signs of strength, whilst others falter to keep profits stable, or find that debt burden cripples growth. Value investing in recession can still bear fruit.

Basically, any investment type will have its winners and losers. Keep a wary eye out for signs of weakness in those you have bought. Sell on weakness signals. Keep a watchful eye out for those that buck the trend. Buy on signs of strength, going forward.

A long-term financial plan is essential in both good and bad times. Over the term of your investing life you will see many ups and downs in the markets. Keep a realistic perspective. Avoid the depths of gloom or the heights of optimism. Sell too soon. Buy on an investors mood upturn.

These are all essential skills for spotting recession proof investments.