Synopsis: Fleeing the markets during recessions and pandemics is unlikely the best decision for traders..There are effective trading strategies worth exploring.
Trading in the financial markets does not stop even during a pandemic or recession. There may be times when a temporary halt is implemented as markets suffer from an extraordinary succession of losses. However, this does not mean that the capital markets stop. With the right trading strategies, traders can still rake in profits.
Avoid dumping all stocks but reassess holdings
One recession investing suggestion from experts is to do nothing. Accordingly, it is better to be passive than to actively try to outmaneuver adverse market forces. A study by Morningstar reveals that less than half of US stock funds survived and outperform the average passive investor in 2018.
“The big picture takeaway is that active management is a really difficult game and finding good active managers is more difficult still,” says Ben Johnson, Global Director of Passive Strategies Research at MorningStar.
There are cases, however, when it is necessary to reduce exposure to certain stocks that are unlikely to survive the recession. A reassessment of holdings would be in order, but dumping should only be done when there is certainty that the businesses represented by the stocks are going to fall.
Stick with proven recession-resistant assets
While there are no assets that guarantee consistently positive investment returns, some are known to fare better during dismal economic situations. The shares of utility companies and stocks of companies involved in consumer staples are some of the most recommended options. No matter what happens to the global economy, people will always need utilities and consumer goods. As such, they are unlikely to go out of business even under severe economic slowdowns.
It is also a good idea to consider dividend stocks, which are historically regarded as viable sources of income whenever there are recessions. A Capital Group report suggests having a portfolio with a high percentage of dividend-paying stocks, companies with credit ratings in the BBB level or higher, and low fund-risk metrics.
Also, it is not a bad idea to engage in foreign exchange trading. As one report puts it, foreign exchange trading is the recession-proof business of the 21st century. “The FOREX, being the largest liquid financial market in the world, ensures there are always buyers and sellers for any type of currency because the world economy relies on the movement of goods from country to country.”
Forex trading does not always guarantee success, though. Traders need to find the right strategies for their trade. A study on FX strategies by Regal Core Markets (RCM) says that “there are countless different strategies, each with their own strengths and weaknesses.” It is up to the trader to determine the right method to use by determining which one allows them to read price movements more meaningfully.
The forex market is considerably bigger than the stock market, with its daily trading volume eclipsing those of all other markets combined. It already passed the $6.6 trillion mark in late 2019. That is why Regal Core Markets wants to help bring this larger breadth of opportunities through its trading platform, which is built with advanced technological implementations and operational infrastructure to support traders.
Regal Core Markets is taking advantage of the decentralized nature of the forex market as well as its 24/5 operation to offer innovative ways to trade and make profits even with a pandemic and recession still ongoing. Its platform supports multiple tradable assets and provides multiple ways to generate profit. Again, forex is widely regarded as recession-proof, so it cannot be unintuitive to focus on it when the economic conditions are unfavorable.
Broaden the investing time horizon
A paper by Nicolas Barberis recommends investing for the long run because the markets are predictable over longer periods. “We find that even after incorporating parameter uncertainty, there is enough predictability in returns to make investors allocate substantially more to stocks, the longer their horizon,” the paper writes.
This idea is virtually never challenged by investment experts. However, it is often ignored or neglected because most investors focus on short-term results. Traders can make sounder decisions when they examine trends with a longer timeline.
It is not unusual for investors to avoid the markets when the conditions become tumultuous. However, experienced investors know better than dumping all of their stocks, ignoring long-established safe assets, and fixating on short-term goals. The markets tend to underperform when a recession hits. However, this poor performance is rarely a reflection of the medium-term and long-term outcomes.
