Red arrows in a downward direction
Recession fears are flaring up, and Wall Street investors as well as currency traders are bracing themselves accordingly to tackle the turbulent economic waves.
Financial markets have been sliding since the beginning of 2022, with major indices, stocks, cryptos, and other assets losing monumental value. At this juncture, it is essential to be aware of the possible ways to emerge out unscathed from such crises.
Here are five valuable tips for you, if you wish to remain stable and continue exploring the markets, even amid a possibly collapsing economic structure.
1. Turn towards defensive stocks
As a rule of thumb, defensive stocks have a track record of performing better than cyclical stocks during recession times. As opposed to technology or other growth segments, defensive spectrum stocks belonging to consumer staples, utilities, and healthcare sectors do not experience a waning demand even under challenging conditions. According to a recent Morgan Stanley report, aside from energy stocks, all the 2022 best performers have come from the defensive sphere.
Hence, market participants should look toward non-cyclical sectors to gain a semblance of protection amid the looming recession clouds.
2. Short selling for short-term gains
Short selling, a type of leveraged trading, provides market players with an opportunity to take advantage of falling markets. Thus, short selling is one of the most viable ways to gather short-term benefits from collapsing financial prices. Moreover, this feature is quite easily accessible via several trading and investing apps where you can pick declining instruments for selling.
However, don’t forget to exercise caution pertaining to the risks of this type of trading.
3. Capitalize on declining stocks via the Dollar-cost averaging technique
History shows that all recessions are temporary, as economic progression and recession phases maintain a cyclical posture. With a Dollar-cost averaging method, you can gradually buy high-potential declining stocks to ride their post-recession upward wave. This way, your contributions can be distributed over a specific period, ranging from weeks to months, minimizing the overall risk.
In other words, this technique keeps you away from buying every potential dip that, most of the time, might translate into huge losses.
4. Compile a post-recession strategy
It is always a good approach to timely prepare a post-recession strategic plan for achieving long-term results. For instance, you can keep track of global financial happenings and the performance of major companies and indices, in order to analyze the nuances of the recession. Consequently, you can draft a solid plan regarding how to approach the markets afterward, to amass the best possible results.
5. Consider stable & dividend-paying companies and other innovative approaches
To remain stable in the midst of recession, you should mainly turn towards only established, large-cap companies with smooth cash flows and revenue. While these corporations can better withstand the economic pressure, they also sometimes distribute dividend payments. Moreover, you can consider diversifying your portfolio with multiple asset categories during periods of economic turmoil to neutralize the adverse impacts.
