It can be tempting to put business or asset expansion to a screeching halt when we’re going through a pandemic and a recession. It’s understandable—not making major moves in times of crisis feels safe and comfortable. Protecting your current assets instead of trying to acquire more feels like the wisest of options.
But just because the times are uncertain, it doesn’t mean that there is no safe way to expand your assets and businesses during the crisis. This is because when our economy is volatile, it can create just as many opportunities as it can destroy them. It certainly depends on what industries your assets belong in. While dynamic changes in the U.S. economy can certainly cause losses, they can also provide opportunities for more employment and firms starting up or expanding.
Here are some investment options you can look into in the time of COVID-19.
You can still make some investments despite the uncertainty and anxiety that can come with it, especially if you choose companies known for having low debt and good cash flow. If you truly want to be safe when making investments during a recession, avoid investing in speculative firms, which means companies with the majority of their assets tied up in investments or projects with uncertain returns. You also need to avoid investing in highly leveraged companies, which means they have more debt than they have equity. Go for investments that are lower in risk, like the following:
- High-yield savings accounts in online banks
- Money market accounts, which offer higher rates than your typical high-yield savings account
- Treasury inflation-protected securities (TIPS), which help people shield their funds from inflation
Consumer staples and essentials
While they say that no industry is truly recession-proof, essentials like food, beverages, hygiene products, and household goods might come close. No matter the economy’s state, people will always need to eat, drink, and shower. Investing in consumer staple socks is perhaps the safest move you can make because this is an industry that produces and sells services and goods that will always be in demand.
Another industry that you can consider in making bigger investments is the real estate industry, especially since major recessions can often ring about a drop in property values. This is beneficial for investors because it can allow you to purchase a property at a lower price and eventually put it back into the market for a larger profit when the economy recovers and prices are back up. While you wait out the recession, though, you can rent out the property to a tenant—providing you with a stable passive income as you wait. If you partner with a reputable mortgage company, you might find the property that’s a perfect addition to your portfolio.
There is a reason why not putting your eggs in one basket is a cliche—it’s because it’s true, especially where investments and assets are concerned. Now more than ever, you need to ensure that you have multiple investments and income streams that can help shield you from potential losses if a specific industry or product that you’ve invested in loses its value. Here are some ways to diversify your investment portfolio:
- Make sure you have an emergency cash reserve. Almost all financial experts agree that your emergency fund should be able to cover your living expenses for at least six months. This cash reserve can take the form of a money market account or other similar accounts and can even be domiciled in your bank account. Having this cash reserve can help you immediately liquidate your assets in case of an emergency or unexpected hardship. Worse comes to worst. It can also help you buy up assets if the economy suddenly tanks.
- Don’t go for a single stock with varying volatility or risk; instead, go for exchange-traded funds or ETFs. In a nutshell, ETFs are a collection of investments, which means they are already inherently diversified. But bear in mind that because the risks are lower, the potential rewards are lower as well.
- Ensure that your portfolio is always balanced. Re-balancing is simply adjusting your assets’ allocation to prioritize the portfolio mix that you prefer and make sure that all of your investments are always pointing towards your objectives.
While there are plenty of factors to be concerned about, and it’s important to be safe, we also need to remember that the recession will not last forever, and we need to be ready when the economy recovers. Invest well, and good luck!