There are periods when the economy is booming and business is doing really well, but there are also times when things begin to take a turn for the worst. As we are quickly heading into a recession, it’s important to protect your business and finances as much as possible. This can be done by acquiring recession proof assets, which we explain more about below. By acquiring recession proof assets, you are giving your finances and your business the best chance of weathering the financial storm.
What Does Recession Proof Assets Mean?
A recession is a period of economic decline, which usually happens after a fall in GDP in two successive financial quarters. Though temporary, a recession can have a big impact on trade and industrial activity. It also often leads to job losses and trouble for businesses. In a recession, a lot of people stop spending unnecessarily. With everyone worrying about money and many people losing jobs, revenue takes an unsurprising hit. This can cause many stocks to lose their value as companies stop investing. With revenue slowing down, it’s important for businesses to think about protecting their assets, and recession proof assets are a key way to do this.
There is no denying that a recession can have a huge negative impact on businesses, and those without recession-proof assets are likely to suffer more than most. Below, we have taken a look at the downsides and perils that come if you don’t have the key recession-proof assets.
Best Assets in a Recession
When a recession hits, some assets are better to have than others. Recession proof assets are those which retain their value regardless of the economic downturn. Cash and dividend yielding stocks are key examples of this. Even in a recession, having access to cash is beneficial for a business.
Assets that are recession-proof are those that are unlikely to experience a dip in sales during a time of recession. For example, pharmaceuticals and energy. Even in the midst of a recession, people will continue to buy medicine and energy.
Supermarkets are another example of recession-proof assets, as people are always going to need to buy the likes of food, toiletries and cleaning products. FMCGs (fast moving consumer goods) can also be relied upon during a recession, as these are sold at a relatively low cost.
Worst Assets in a Recession
However, not all assets are good to have in a recession. When a recession hits, there are some assets that are worse to hold than others. For example, assets in the restaurants and hospitality. This is because when people are faced with a recession, some of the first things they give up are leisure and luxuries. It’s unlikely that anyone who is feeling the financial strain of a recession is going to continue eating out, going on holiday and socialising.
This is also the same for high end goods and luxury items. If you have these types of assets, it’s likely that you will notice their value dwindling during a recession. However, we have seen that some extremely high-end stocks such as luxury car brands may still weather a cost-of-living crisis as their typical customer is less affected by a downturn.
You should avoid stocks that tend to fluctuate with the economy, as these are likely to lose their value if the economy struggles. Cryptocurrencies are also some of the worst assets to have in a recession, as these tend to be unstable at the best of times, and a recession only makes this worse. During a recession, cryptocurrencies are likely to be one of the first currencies to suffer.
Other Ways to Weather a Recession
There are a number of ways to weather a recession, regardless of the industry that you work in or the type of business you have. Though owning the right assets is important, there are a range of other things you should be doing when a recession is looming. For example, make sure that you are living within your means, and you’re not spending more than you can afford. Though this can be enjoyable and doable to begin with, it’s likely to leave you struggling further down the line. We also recommend having diversified investments; if one takes a hit, it’s helpful to have others as a back up.
Financial planning is also key, as this will help you to know what you have coming in and going out, and what you need to budget for. Think about the costs that you can’t change and those that can be reduced. For example, you can’t alter your mortgage or rent payments to help you weather a recession, but you can cut back on luxuries and holidays.
Investing in a Recession
When you are investing in a recession, you need to be careful about what you are investing in. You need to think about your investment as a long term plan, something that spans far beyond the economic downturn. Be wise with your choice of investment, and choose something that is likely to hold strong regardless of the changes in the economy.
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