How does recession affect investments?
Whether you’re new to the investment world or you’re a keen investor, you’ll appreciate that economic strength plays a huge role in investing. So when a period of recession comes into play, and stock, housing and other markets are affected, it’s normal to be a little concerned. Here we will explore what recession means, the status of the global economy, and the impact this has on investing.
What is a recession?
As stated in the Cambridge dictionary a recession is “a period, usually at least six months, of low economic activity, when investments lose value, businesses fail, and unemployment rises”.
Is the global economy entering recession?
The coronavirus pandemic has had a huge effect on economies all over the world. According to a report by the BBC, there have been “big shifts in stock markets, where shares in companies are bought and sold” and that “investors fear the spread of the coronavirus will destroy economic growth”. The article goes on to state that “many advanced economies are expected to enter recession this year” as the “International Monetary Fund (IMF) says that the global economy will shrink by 3%”, describing “the decline as the worst since the Great Depression of the 1930s.”
How does recession impact investors?
Of course, this has caused a great deal of worry for investors. With the uncertainty of the economic impact of the pandemic, many are concerned that their investments will greatly depreciate in value. So what should investors do to protect their assets and investments?
There is no quick or easy answer to this – as what investors should do during a recession really depends on their individual circumstances, such as the types of investments they are working with, how much risk they are willing to take, and the longevity of their investments.
Some experienced investors may look at risky tactics like short changing stocks, but this should only be done by experienced and qualified traders. Others may take the opportunity to invest in stocks that have decreased in value, seeing it as a way to get great stocks and shares at reduced prices, which may lead to strong returns later down the line. Some investors may choose to simply wait it out and do nothing. Those that have long-term investment strategies may take the view that despite a current dip in value, it’s likely to rise again once the economy recovers.
If you’re unsure what to do with your investments, it’s important to seek advice and guidance from a qualified expert. There are many companies in the financial investments and trading sector that can help you figure out the best strategy. The key is to not make any rash decisions, try to see the bigger picture and get expert advice from a professional.