How to Make Solid Investments During Hard Economic Times

Published by Ann Knapp in Financial Planning, 1 month 3 weeks 5 hours 28 minutes ago

The recent wild swings of the stock market have left many doubting the health of their investment portfolio. Although we should concentrate on investing for the long run, during an economic down-turn, it's easy enough for investors to lose focus. The following are ideas and tips for staying the course, regrouping, and perhaps recouping.

Bargain Stocks

Now is a good time to consider purchasing bargain-priced stocks with established companies. Many a smart investor has made a healthy profit by purchasing low-priced stocks with a plan to hold on to them for five to 10 years; a span of time which will most likely earn the investor a decent profit. Consider companies that have a solid history, low debt and strong earnings.

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Another place to invest is with companies who prosper regardless of what the economy may be doing. These companies may have under-priced stocks but provide services or products that fall under the "need" category rather than the "wants." Look at companies that serve people's basic needs - everything from utilities to household supplies. Companies which thrived during the good times but who have taken a hit during the downturn also represent investment possibilities. These are best of the breed companies that represent a value right now and can position investors for solid advantages in the next bull market. Before purchasing stock, evaluate the health of the company. Is there a good chance it may be out of business in the next three to five years? Is it expected to be a continued leader in its field, and is there access to capital for continued growth? Examining the downside risk of these companies and taking the perspective of an investor, rather than a trader, can help investors identify companies with solid value.

Adjust the Risk

During bull markets, many investors are likely to keep up with the crowd, exposing themselves to new markets with higher returns, such as stocks, bonds or real estate. An economic down swing is a good time to take a step back and re-evaluate your past approach to decide how much risk can be handled comfortably at this time. While it's good to stay diversified, one senior investment strategist suggests adjusting the portfolio risk in accordance with the ability to get a good night's sleep, whether in an up or down market.

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Take a lesson from history While the present economic hardships are unnerving, the U.S. has actually faced much harsher climates in the past. Investors accept that the reality of investing requires accepting some level of risk, and believing things will improve in the future. Lowering exposure to risk may mean sacrificing potential higher returns, but peace of mind is crucial for investors who want to emerge from the present challenges with their sanity, and their portfolio, still intact.

Seek Advice

Investment advice may be crucial right now, as trying to understand the tumultuous market can be a challenge, especially for those who have traditionally tried to do their own stock research or online trading. It's never a bad idea to seek the advice of traditional financial advisors. Unless you are a very seasoned investor, this is not the time to try to go it alone. It may also be helpful to talk to friends and colleagues - especially those a generation or so ahead of you. Having weathered uncertain cycles such as this one, their past experiences can provide valuable insights as you navigate your way through this season to future prosperity ahead.

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