Oblivious Investor: How to Invest with a Looming Recession

For many investors, recessions are a painful lesson in holding the wrong stocks for the wrong amount of time.

And investors often miss the simple truth that the stock market and the economy aren’t the same. The Covid-19 lockdowns resulted in a recession, but stimulus payments and other forms of entertainment being closed led to a rise in stock trading that sent markets into overdrive in 2020.

What matters in the stock market relates to profits. With rising economic uncertainty and higher interest rates, traders see lower profit potential in growth stocks. That’s why they gravitate towards the safety of more “slow and steady” stocks.

For most investors, the real way to win in any economic climate is to find a comfortable strategy—and then stick with it. It will underperform at times and outperform at others. And that strategy may need to change as life events cause changes as well.

But by following a strategy, and sticking to it, even during a recession, investors avoid cashing out at the worst possible time. Or losing out by chasing investment strategies that just performed well, but likely won’t again for some time.

However, investors might want to consider changing the fixed-income part of their portfolio. That way, they can adjust to rising interest rates today.

For the full analysis on why most investors should simply stay the course, click here.