We are now told there is a great risk of a recession. The bushfires that devastated so much of Australia, severely impairing our tourist industry, are conspiring with the globe's new enemy – coronavirus – applying the handbrake to our economy.
If we suffer 2 consecutive quarters of what is strangely labelled 'negative growth', we are officially in recession. What will you do to survive if this happens?
Here are 6 steps that serious share investors can take to survive.
- Diversify. If you invest a lot of your available funds in 1 or 2 shares, most of your risk is focused on the performance of those companies. When you diversify your portfolio to include a range of investments – even international shares – you are spreading your exposure and are less vulnerable.
- Set clear and measurable objectives. What motivates your investment? Is it to build wealth quickly or maybe to plan for your eventual retirement? When you are clear on the answers, you can set a meaningful strategy with the solid shares you choose to be a part of your plan, rather than assembling a mishmash with no overarching purpose driving them.
- Re-assess your level of risk. You may have normally favoured a balanced portfolio of blue-chip shares and higher risk speculative stocks. But when times are tougher, it is often a good rule have a smaller share of risky assets in your portfolio. The 'safer' stronger shares are less likely to be severely impacted in a recession.
- Consider moving to a managed fund. As well as using your own judgement for selecting shares, why not move a part of your investment to one of the better performing managed funds? But choose carefully – good past results are no guarantee of continued successes.
- Check the fees being charged. With no certainty surrounding your future returns, a managed fund may provide a buffer against the recession, but fees can also limit the earnings you'll enjoy through this investment. To keep costs down, consider investing in indexed funds whenever possible.
- Think about making a move. If you're employed, how secure will your position be in recessionary times? Is your company badly impacted by this slowdown? Are the fellow employees you admire suddenly moving on? Most importantly, what did your manager tell you at your last performance review? It could be time for you to look for a better, more recession-proof job.
Follow these tips and seek any and every extra piece of advice on offer. Then fasten your seatbelt and ride out the turbulence! If a recession occurs, it should hopefully be short-lived and you'll soon be back on familiar ground.
