posted in: Building Wealth

Building Wealth During a Recession

With an Australian recession most certainly set to become a reality, you may be wondering whether it’s possible to continue to build wealth in the short to medium-term. 

The short answer is yes – In the past, many investors have not only weathered the uncertainty of recessions, but have also actually made money during recessions. 

So, how can you safeguard your investments and reduce losses during a downturn, while also taking advantage of opportunities to build wealth? 

Don’t panic sell 

I can’t say this often enough – don’t panic sell. I’m not saying don’t sell underperforming assets, but should you choose to sell, make sure it is a rational decision and not an emotional decision made out of fear. 

Panic selling is what typically sends the share market into freefall and in many cases will leave investors worse off. Those who sell when the markets drop significantly will be locking in losses. However, those who can hang on until the market recovers, will see the value of their investments return.

Generally, a good strategy is to buy and hold for the long-term. For good quality investments such as blue chip shares or property, a market that is affected by panic, can be a great opportunity for the savvy investor to take advantage of and pick up quality investments at a reduced cost.

Get the foundations right 

If you’re interested in investing during a downturn, make sure you’re in the best possible financial position to do so. Do you have sufficient cash flow and buffer? Is your income likely to be disrupted during a recession or are you in a stable position with savings in the bank to take advantage of investment opportunities? 

Source the right investments 

The goal when investing during a recession is to find discounted or bargain investments with long-term potential such as blue chip shares or property. It’s all about striking the balance between picking up an investment cheaply without taking on too much risk. 

Of course everyone’s situation is different. Those who are able to take advantage of opportunities during a recession, are generally in a better savings and cash flow position than others. Again the key is to understand the risks and what level of risk you’re comfortable with and invest accordingly. Talk to your financial planner to understand the potential funds you have available to spend on accessing quality investments. 

About David Hancock

David Hancock is a director and Senior Financial Planner at Montara Wealth. His role is to oversee the running of the business and ensure the delivery of exceptional service and strategic based advice to clients. David is well known for developing strong long-term relationships with clients and is passionate about helping them identify and implement life changing financial strategies.

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