After the Great Recession, many investors have learned lessons. Instead of selling in the panic, they should have had held onto their investment. That way they would have had fully recovered and gone on to increase in value. Recovery will always come after the recession. There are investment strategies that let you gain profit during a recession.
1. If the Share Price Decline, Use Dollar-Cost Averaging
Normally, we will never see if a recession is about to come. But, in the advance of recession, you will notice a sell-off within the stock market. If you witness that, remember, that there will always be a recovery after that.
Thus, many investors like to take advantage of that declining market with the dollar-cost averaging method. Once you use this method in your investment, you gradually reduce your overall cost in the share price.
Once the price rebound, your cost is always lower than the price.
2. Buy into Dividends
During a recession period, the best option of stocks to be held is the ones from established, large-cap companies that have strong balance sheets and cash flows. Besides those benefits, these companies also pay stable dividends.
For investors, a dividend payment can have various purposes. One, the companies with a long history of paying dividends are financially sound and will survive in most economic environments.
Two, dividends also offer a return cushion. Even if one day the share prices decline, investors will still get a return form their investment. These two reasons make dividend stocks have the tendency to outperform non-dividend stocks, especially during a market downturn.
The best way to own these stocks is through a mutual fund or exchange-traded funds (ETF that invest in dividends paying companies, strictly.
3. Invest in Consumer Staples
Consumer staples are products like food, medicines, and hygiene products, that consumers will always purchase in every economic situation. These types of companies outperformed the S&P 500 during the last five recession, according to the data.
The example of these companies is Johnson & Johnson, Conagra, and Wal-mart. These companies pay good dividends that make their defensive profile stronger.
