Get in touch: 07707 222 873

How Smart Investors Make Use of Recession to Grow Rich

Just close your eyes and think about recession. What do you see? People losing their jobs, stores and companies shutting down and a gloomy picture of the society. Recession hit the US economy back in 2008 as well when thousands of people lost their jobs and their homes and some even lost the hope for a good life. While the economy has recovered since then, there is hardly any doubt that the aftereffects of this event has left us all bewildered.

There are people, however, who are able to profit off recession as well. During hard economic times, some people will still be making money or make strong decisions that will help them recover more quickly than the others. How are they able to profit in a desolate situation like this? We will help you now.

Dollar cost-averaging

When the economy is thriving, most people will buy stocks at a higher cost. The chances are high that some of these stocks are bought overvalued. When recession strikes, prices tumble down very quickly because of which investors get an opportunity for dollar-cost averaging. This is done by buying a larger number of stock at a smaller price. As a result of this, the average cost of a stock comes down. As a rule, any stock that comes down will ultimately go up. Therefore, when the prices rise, the investor is always in a profit.

Dollar-cost averaging is one of the simplest yet most important investment concepts that one can make use of to protect their investments. This not only saves your portfolio’s value from rapid eroding but helps in gaining extra profits when the company finally gets back on its feet.

However, dollar-cost averaging must be done very carefully. If you buy the stocks of a fundamentally strong company that will most certainly turn its fortune around, the buying more stocks will be worth the effort. If the company is falling because of recession AND because of bad practices, it can eventually tear apart, making your money end up in a sinkhole.

Buying dividend stocks

On other days, investors may prefer growth stocks over dividend stocks. However, when times are tough, dividend stocks from strong and large-cap companies are almost always a better option. They help in safeguarding your money and provide you some income as well. These stocks can help you in getting some cash on a regular basis as well.

Note that companies that are very large, have strong business models and are the most revered names in their business are the ones you should be picking. If you make a wrong pick, you will be making less money and getting rid of the stock will be another headache for you.

Some people are able to make huge profits out of consumer staples as well as small sin goods. Cigarettes could be a great example of a sin good that is able to sustain through bad times. A recession is part of the economic cycle. If you are prepared, you can actually make use of this situation to buy stocks you like and even make a small fortune.