10 Tips On How To Invest During A Global Recession

August 21, 2008 | By | Reply More
  • Look at major companies that trade around the world and are not dependent upon Western sources of revenue.
  • Avoid businesses that have anything but the barest minimum of debt.
  • Remember that in hard times even the most bombproof assets can take a hammering. Avoid property, most retailing, manufacturers and distributors of non-essentials.
  • Buy essentials to living such as utilities.
  • Beware of Bonds. Traditionally seen as safe investments during hard times. There is now a difference, and that is the relentless inflationary pressure building up as the printing presses continue to roll out the Dollars, Euros and Sterling. If the yields don’t match the rate of inflation you are losing money. Pick very carefully.
  • If you believe that a company is a buy the chances are that you believe that its market sector also has strength. Consider buying the sector ETF to cut down on the risk of an unexpected calamity falling on your pick.
  • Steer clear of risk. The best way for a non-professional to steer of risk is by only considering those companies that have strength in simple markets. Meaning that they should not be involved in complex products that may have a limited life before they are superseded by a competitor. Think Proctor & Gamble, Johnson &Johnson, Coca-cola.
  • We would be remiss if we neglected to mention precious metals in this context. People throughout the world have always considered gold as a safe haven during turbulent times. The problem with gold is that, unlike bonds or top class companies, it does not pay a dividend and can cost to store and insure. Nevertheless now a global recession has developed it will mean that most paper currencies, none of which are backed by gold or any other asset, will devalue as inflation takes hold. This is why many analysts are suggesting that the yellow metal will reach $1000 an ounce (currently circa $800 an ounce) before the year end and with an eventual high over $3000 an ounce. 5%-10% of your investment funds in Streetracks Gold Trust (GLD) is an option to consider. This ETF actually buys, sells and stores physical gold based on the spot price and value of the fund at any given time and is traded like any quoted stock or share. Take a look at Bullion Vaults if you prefer to buy and sell physical gold in your own name and store it in Zurich, London or New York.
  • Beware of miners, however bright you think the prospects are for the metal they produce, they are subject to many outside perils. Although the right miner can prove a very profitable investment they are speculative in recessionary times and are not for the faint hearted. By the same token take care with platinum, palladium and rhodium. Half of all platinum produced is used by the auto industry in catalytic converter exhaust systems. The industry is spending on research into replacing these metals with cheaper materials. If successful that is an awfully big chunk of demand down the swannee! If not, the Chinese, Indians, Russians and others are clamoring for cars as more and more of them join the affluent middle classes. After the recent massive drop in PGM prices it is only a matter of time before auto manufacturers buy back into the market, our guess is towards the back-end of 2009.
  • You should keep some cash in reserve for a rainy day. Anything can happen. You may lose your job or have an unexpected large medical bill. Life being what it is you can bet that if you have to liquidate one or more of your holdings it will be just at the wrong time.

To summarize, think companies manufacturing or distributing simple yet essential products, with good cash flow and little or no debt and have a worldwide market.

Diversify your holdings by spreading your risk via a favored market sector ETF, buy a little gold and keep some cash handy for a rainy day.

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