Surviving A Recession
Topics: Recession, investing, mutual fund rating, stock market investing, personal investing
When the major stock market averages declined by 10% from their 2007 highs on Monday, we were in official market correction. Sentiment is negative owing to the economic back drop of, at best, tepid growth according to the Fed, or a recession.
Consumers twenty-five credit binge fueled by home equity loans, credit cards arriving in the mail, sub prime and adjustable rate mortgages and automobile leases, appears to be over. Savings rates has plummeted from 14% to 0% (perhaps to a negative number if home values continue to decline). Pile on top of that the banks debt problems, high energy prices, the homebuilding industry’s woes, weak retail sales and declining consumer sentiment, it’s no wonder that many investors believe a recession is in the offing.
Investors face two challenges right now. If the economy is headed into a recession, where do I put my money? And, if the economy avoids a recession will I be in the right investments? The stock market anticipates the future. It will decline prior to the US entering a recession and it will start going up prior to the end of the recession.
Investors who wait for certainty that a recession has begun will be selling stocks at the worst possible time. The same logic holds true if you wait to buy stocks until after the economic recovery, the market will have already moved higher in anticipation. Human psychology is a future complication. We’re most optimistic about the stock market when it’s roaring ahead and most inclined to buy; and most pessimistic and most inclined to sell, when it’s at its bottom. Of course, our investment strategy should be just the opposite. The moral to this story is that you should invest for the long term and not try to time the market.
If a recession is imminent, the stock market will decline by another 10%. How do you make money? To get technical, buy mutual funds, ETFs and stocks with negative betas or high alphas, such as gold, commodities, real estate and foreign stocks.
Gold and commodities already have had good runs, the US commercial real estate market appears to be weakening and foreign economies are increasingly becoming intertwined with ours. Non-investment grade bonds have good yields but are not the place to be given the continuing bank credit problems. High grade bonds and Treasures have relatively unattractive yields, particularly as you go out in maturity.
The best performing stocks in a recession are likely to be industry leaders, companies with strong overseas sales, consumer staples and health care. The technology sector is solid and internationally focused, so we’ll add it to our list. Essentially we’re looking at companies whose sales will be strong during a recession. These stocks may not go up in price during a recession but they will perform relatively better than most other equities and are safe investments. The bottom line is it’s hard to make money during a recession.
If the Fed is right and we’ll see modest economic growth in 2008, the markets are at their lows and could move 20% higher over the next six months. How do you position your investments for this possibility? By staying in the market and buying the same mutual funds, ETFs and stocks as you did for your recession portfolio. The recession portfolio is a conservative portfolio. Although it will miss some of the dramatic gains made by small cap and more violate stocks, it also protects you from the downside of those stocks while enabling you to participate in any stock market rally.
What to do now? Review your long term goals and make sure you’ve got the right asset mix, take losses (up to $3,000 more than your gains, remembering to match short term gains and losses) to minimize your taxes, reposition your equity investments according to our recession scenario, move your bonds into cash and tighten your seatbelt. We’re in for a bumpy ride.
Bill Byrnes is a co-founder of MUTUALdecision (www.mutualdecision.com) A former investment banker and finance professor, he has been CEO, chairman and served on the boards of a number of public companies. Bill is a CFA with over 30 years investment experience.
Previous Articles Highlighter:
Options Trading Mastery: Construction Of The Time Spread (1)
You can construct a time spread using either two calls or two puts. A long time spread is constructed by purchasing the out month option and selling the nearer month option.
New Year Resolutions For Network Marketers (2)
Remember, it is often those who are very good at communicating that experience significant success in life and business. Become Part of a Mentor or Coaching Program Don't rely on your upline to be your mentor or coach.
Promoting Your Business Online (3)
Generating leads is a fishing process for businesses to draw in web users who are lead to believe that they have a chance of gaining the once in a lifetime deal.
What Should An Ideal Computer Interface For Music Applications Do? (4)
Already virtually all high definition cable TV company set-top boxes already utilize ports to accommodate such an interface. Thus, users should also be able to interconnect various home-networking appliances, using a coax cable, such as HDTVs with set-top boxes, TVs, and computers in various rooms around a home or office, thus enabling the transmission of data over distances of more than 100 meters.
Back To School Uniforms Make Dressing For School Easy (5)
They finally had some control over how their child would look everyday and the act of getting their child out the door to go to school was so much easier.
How To Make Your First Website From Nothing (6)
Did I mention that the CMS systems I mentioned are 100% free to download! To learn more about starting a website and other relevant information, visit www.wdclub.com the home of the free dropshipper list directory where June Beezy, a 25 year old, shares his real life internet experiences.
Understanding How Debt Consolidation Can Help You (7)
If you are caught in a cycle of debt and you don't see any way out, debt consolidation may be just what you are looking for. Retain your dignity and clear off your debt.
Gadgets - Mechanical Or Maniacal Devices? (8)
Of course, you'd think something that could take my soul could take my wrinkles too. You'd think I could get with the twenty-first century, but not being mechanically inclined continually gets in my way.
Event Planning In Washington DC (9)
While it may be worth your while to work around the availability and location of a truly remarkable DMC, it should not become a burden on your plans. It is not worth the potential stress, confusion, and inconvenience that it could cause.
Hand Laced Rawhide Lamp Shades For Beautiful Western Decor & Rustic Atmosphere (10)
When you prepare to purchase rawhide lamp shades you will want to decide how your lamp will be used. This is just a matter of choosing in which room you will be using it.
Newer Articles Highlighter:
What Are The Major Reasons For Owning A Cell Phone Today (1)
There are three ways that this can be accomplished. First, some phones now come with locator features that would guide the user back to familiar territory. Second, children's mobile phones can be equipped to be track-able in case they are lost.
Why More Fishing Enthusiasts Are Practicing Catch And Release Fishing (2)
So be careful when fishing and releasing your fish that you catch. You will also need to take care when releasing them just give them a few swishes in the water before you let them go let them get some breathes in before you drop them in the water as they still may be in shock that they are out of the water being hooked by something really sharp.
Taste Your Way To An Affordable, Well-Stocked Wine Cellar (3)
It could be under the bed, on the closet floor, in a refrigerated cooler, or in a basement room. Secondly, you don't have to be rich to stock your "cellar" with fine wines; you just have to be smart.
Mastering The Craft A Must To Breaking Into Show Business (4)
Be confident in your abilities, and accept criticism, making adjustments to change the things you are doing wrong. Go out each day and meet new people. Be aware of who they are and if they actually have access to jobs.
Online Education: How To Know If It's Right For You (5)
Refer to the directory put out by the Council for Higher Education Accredidation to be sure you have a legitimate degree program. Those few minutes of online search can save you a real headache later.
Design Your Website Using Specialized Web Hosting Services... (6)
Ranju the co associate of Joe Bradley announces Web Host that provides you virtually unlimited disk space and bandwidth, specially designed for Internet Marketers. Comes with built-in Pro Autoresponder.
Home Based Careers Do's And Don'ts (7)
-Hesitate to promote yourself. Let potential clients know what you have to offer. Never be disheartened if it feels like you are making a slow start. Remember that in the long run perseverance pays off.
Successful Actors Do More Than Act: Learn Networking Secrets (8)
Otherwise, you may spend thousands of dollars, and meet hundreds of people that will do nothing for your career. "There's one thing that you must know and that's not to pay money up front to be represented," Henderson warns, "There's a lots of scams, and of course if it sounds too good to be true, it probably is." Knowledge also serves to help you find the right places to go.
Financial Security In An Unstable Economy (9)
He offers practical advice on how to become financially literate and financially independent: 1. Buy Your Own Home: It is important to buy your own home because with a small amount of money, and a lot of someone else's money, you can get started.
Learning From The Best: A Study Of The Greatest Business (10)
Kroc had a powerful vision and an unstoppable business model, but he had more than that. He had something different, and went in directions that had never been tried before.