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Key takeaways
- It is possible to make money in a down market. You just have to be more strategic with your plans.
- Avoid speculative stocks. Instead, invest in high-quality companies.
- Consider selling options and investing in actively managed funds to earn a decent return during a weak market.
As the fear of recession grows, more investors wonder how to recession-proof their investments. Is there a way to not lose money in a down market? Are some investments better than others?
Here is what you need to know to protect your wealth during a weak economy and declining stock market, as well as how you can potentially grow your wealth.
Investing comes with risk
It’s important to understand that the only way you can remove 100% of the risk of losing money when investing in the stock market is not to invest at all. When you purchase an investment, whether it’s a stock, bond, mutual fund, or exchange-traded fund, there is the risk of it going down in value.
While you cannot remove this risk, you can reduce it by investing strategically. Read on for guidance on the moves you can make to keep your money safe and grow it, even if the stock market isn’t increasing.
With that said, here are the moves you can consider if they make sense for your risk tolerance and fit into your investment goals.
Don’t go all in
It might be tempting to pour all your cash into the market when it is down, but this could be a foolish mistake. First, the market looks cheap to you based on where it was. If a stock was trading at $200 per share and now is trading at $75, is it cheap?
Based solely on the price, the answer is yes. But you can’t purchase investments this way. You have to look at the business and the economy as well. The stock could have traded as high as it did simply due to a one-time event or investors being irrational.
Take Peloton, for example. When gyms were closed, the best option for exercising at home was the experience that Peloton provided. As a result, sales were abnormally high, and so was the stock price. But now that gyms are open again and people have more options for working out, Peloton sales are down. The stock, which once traded at over $160 per share, is now trading for less than $10.
Is it …….