What and How You Should Invest During a Recession in Singapore

With recession alarms sounding recently due to skyrocketing inflation, hiking interest rates, and a downturn in the stock market, people are starting to understand the importance of recession-proof investments.

While the idea of investing your hard-earned money in times of a recession can be scary and unnerving, it can be a good idea as long as you take your personal goals into consideration.

So what are the most viable options for investing during a recession in Singapore? In this guide, we’ll let you in on building a portfolio to safeguard your financial future.

• What Is Recession?
• Why Does Investment Decrease During a Recession?
• How Do You Profit from a Recession?
• Who Should Invest During a Recession?
  • You already have emergency savings
  • You plan on long-term portfolio growth
  • You don’t feel the need to consistently check your portfolio
• Investing During a Recession in Singapore: Sectors That Do Well
• Investing During a Recession in Singapore: Where Should You Put Your Money?
  • Mutual funds
  • Bonds
  • Great-performing companies
  • Dividends
  • Real estate
• Investing During a Recession in Singapore: Tips to Keep in Mind
  • Stop timing the bottom
  • Don’t day trade
  • Don’t panic

A recession is a period characterised by a sustained decline in GDP for two or more quarters. It’s worth noting that recessions aren’t only times when economic growth is challenged. Recessions are usually accompanied by fewer available jobs or widespread job losses, as well as government relief.

In times of recession, it’s normal for stock prices to plummet. During this time, markets can also be extremely volatile and experience intense price swings. Because of this, many investors react quickly and try to protect their money by pulling it out.

In times of recession, you have the opportunity to buy investments that are in bad shape or currently taking a loss. Eventually, the value of these investments will increase as the economy recovers.

Not all people are equipped to deal with the risks that come with investing during a recession in Singapore. If you want to invest during this time, make sure you check the following requirements.

It’s integral to have at least six months of living expenses for your emergency savings. If you have this extra money, you can be sure that you will have the funds to take care of your day-to-day expenses even if your investments don’t do well. Having an emergency fund will also help you avoid the need to pull out your investments just because you don’t have cash on hand.

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It’s worth noting that investing in times of recession is hard, especially for beginners. You may think you’re buying something at a low price, only to see its value decline sharply days or weeks later.

The ultimate way to avoid losses in a recession is to have a long-term approach to your investments. You should be able to leave your money for seven years or more. This is also the approach you should take if you want to learn how to invest before a recession.

When there is a recession, the economy is in bad shape. There will also be a lot of movement in the stock market. If you have stocks, you should not feel the need to log in to your brokerage account each day to check how your investments are doing. The more you do this, the more you may panic. This will drive you to make rash decisions.

A lot of industries will be badly hit by the recession. However, that doesn’t mean that the opposite doesn’t hold true: there are also still sectors that will benefit from a recession or at least still be in demand regardless of the economic situation. Here are some sectors you should invest in:

• Healthcare
• Energy
• Consumer staples
• Utilities
• Communication services
• Materials
• Real estate

So what investments do well during a recession? Here are a few pointers on what to invest in during a market crash.

You may think that investing in mutual funds is very risky during a recession but remember that it is risky even in times of economic prosperity. That said, there are less volatile mutual stocks. Investing in various companies will help you avoid future losses.

For instance, ETFs and index funds will enable you to have a basket of securities instead of individual stocks. This will diversify your portfolio and in turn, safeguard your money. For instance, if the value of energy stocks goes down, there will still be other stocks in your basket that will do well and offset the losses of the underperforming stock.

If you’re asking what investments do well during a recession, look into bonds. This fixed-income instrument may include private companies and governments.

For instance, if you want to invest in the Singapore Savings Bonds, you need to deposit a minimum capital and hold this investment for the entire tenure. After your investment matures, you can get back your capital plus interest.

Because these returns are not mind-blowing, bonds are considered low-risk. Going back to the Singapore Savings Bond, this investment is backed by the Singapore government which holds an “AAA” credit rating from global agencies. This means that the risk of not returning your debt is unlikely.

It’s normal for even the most successful companies to do badly in times of recession. However, there are still companies that are able to have low debt and high profits that are worthy of investing in.

Assess which companies show a solid performance through a strong balance sheet and positive cash flow. These are the best indicators that prove companies can still perform even in an economic downturn. Similarly, look for companies that have a clear plan on how to deal with crises.

In times of economic uncertainty, your goal should be to build a steady stream of passive income. Dividend stocks will help you do that. When you buy dividend stocks, it means you’re buying shares of companies that split some of their profits with shareholders like you. The more shares you own, the more money you will receive.

However, you shouldn’t just invest in any dividend stock that piques your interest. Opt for healthy companies that have a sustainable and proven business model.

Avoid the temptation of buying shares from companies that promise extremely high dividends. Companies can still pay high dividends but have negative cash if they borrow more than what they make. However, this is not sustainable.

Shelter is a basic human necessity so whatever happens to the economy, people still need it. One of the benefits of investing in real estate is its constant demand so if you’re looking for a home or property to sell in the future, there will be someone who wants to buy that property no matter what the circumstances are. You may even maximise this investment by renting out your property for passive income.

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Here are some pointers to remember to ensure you’re making wise investment choices.

Trying to time the market during a recession will be a losing battle. There is no way to know the result of the lottery, after all. Nobody knows when the financial market will hit bottom. If you plan on holding your investment for years, it’s not going to matter much.

Nowadays, it’s so easy to day trade. However, only day trade the money you can afford to lose, especially if you’re a beginner. In times of recession, long-term investing is the best strategy.

One of the most common mistakes of investors during a recession is panic selling when stock prices fall. While it’s human nature to want to avoid loss, don’t give in to your emotions. Stay on the course of your long-term goals. If you’re asking if you should keep your investments during a recession, the answer is yes.

Recession is not the time to stop watering your investment portfolio. Remember that no matter how bad it may seem, the wheel will eventually turn.

The secret to investing during a recession in Singapore is to develop a strategy that is based on healthy and recession-resistant companies with great balance sheets. Through this, investors like you can ride on the future market boom and avoid the uncertainty that results due to a weakening economy.

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