It’s not news by now that we’re in a recession – the first in nine years.
The last one happened only six months into Jacob Zuma’s presidency. Back to the present, though, and six months into Cyril Ramaphosa’s presidency, we’re in a recession again.
Who knows where new finance minister Tito Mboweni will lead us, but I suppose at least it’s a fresh start.
I guess we’ve been here before and we’ll make it through again, but in the meantime, there are some safeguards that you can put in place to ensure that your investments are safe.
Financial expert Herman van Papendorp told IOL that “recessions are unfortunately a fact of life – and we need to structure and manage our investments accordingly”.
“To cope with the inevitable volatility – regardless whether recession or boom – that characterises investment markets from time to time, you should always be appropriately diversified across asset classes, investment strategies and mandates to smooth the investment journey as much as possible,” says Van Papendorp.
A ‘technical recession’, as it’s being called, simply means that the economy has shrunk in size for two quarters in a row, which means that companies are likely to make less profit from the South African economy.
Naturally, some share prices reflect this.
“While this most certainly negatively impacts certain assets, it also creates potentially lucrative opportunities for savvy investors to take advantage of during a recession, while there are also long-term benefits to simply staying the course.”
You had me at ‘lucrative opportunities’. So what’s the best way to invest during a recession? Here are four handy tips to help you make the kind of decisions that’ll reap benefits for years to come.
1.Understand asset classes and how they typically behave during a recession
During a recession, buying power is diminished in the economy which means that there are also less demand-driven price pressures. This tends to benefit defensive, fixed-income assets like cash and bonds.
Growth assets like locally-oriented equities or property have a tendency to suffer during a recession. Therefore it is important that your portfolio is diverse. In other words, don’t keep all of your eggs in one basket.
2. Offshore asset exposure should be part and parcel of a diversified investment strategy
If we take timing into account, it’s best to invest offshore when the rand is strong. That said, offshore investments are important for a diversified portfolio. Therefore if you don’t have sufficient offshore exposure, now is the time to diversify your portfolio internationally.
3. Don’t Panic
A recession is likely to affect everyone’s investment in some way, but the negative impact will be far worse for those who panic and make rushed decisions. The smart thing to do is to acknowledge that risk and difficulty is a component of investing.
Stay focused on your long-term goals and stay invested.
4. A Final Pro -Tip From Your Friends At 2OV
The smart thing to do in uncertain financial times is to bring in the professionals to help you make the best possible decisions. After all, two heads are always better than one – especially when one of those heads belongs to an expert at Consequence Private Wealth.
Consequence Private Wealth partners with you and your family to protect and build your wealth. They believe that the consequences of decisions made today will bear fruit over the years, based on the sound principles applied at their inception.
In other words, they’re exactly who you want in your corner when making decisions about your investments during a recession.
To recap: study up on asset classes, diversify your portfolio, don’t panic, and partner with an expert to ensure that you not only come out the recession alive, but with booming investments in place.
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