Important information: The value of investments and the income from them can go down as well as up, so you may get back less than you invest.
THE prospect of a recession can be daunting, scary even. The reality, however, is that like growth or economic expansion, it’s a natural part of an economic cycle. But what exactly is a recession, what are the signs one’s coming and what does it mean for you as an investor?
What is recession?
A recession is when there’s a significant decline in economic activity that lasts for more than six months. There are five indicators which typically show whether a country is in recession or not. These are a country’s GDP (or gross domestic product, which measures the economic output of companies, individuals and government), income, employment, manufacturing and retail sales.
And whether the UK economy tips into recession, is currently front of mind for economists and consumers alike. Here are five ways to survive the onslaught of recession and its possible impact on your finances.
One: Stay invested
You might think it’s wise to get out of the markets when recession happens with a view to going back in when the recession’s over. Even experts struggle to try and time the market (particularly as you need to be right twice to pull it off successfully). History shows that markets can recover from setbacks.
It’s also worth remembering that the stock market does not always reflect what’s happening in the economy. Nowhere is this truer than the UK stock market, with its international companies and dollar earners.
Two: Make sure you have a rainy-day fund in place
It’s always good to have some cash set aside so that you’re able to keep your head above water should the unexpected present itself. In an ideal world, this pot should cover your typical outgoings for three to six months and cope with emergencies.
Three: Drip-feed your money into the market
Picking up on the theme of keeping some powder dry in case things get tough during a recession, you might want to consider switching to a regular savings plan if you normally invest lump sums. This allows you to stay invested, without committing to large sums of money in the market. It also removes any temptation to try and time the market.
Four: Remember the importance of eggs and baskets
It’s easy when investing to fall back on what we know when we feel unsettled. But that can lead many an investor to being over-exposed by a particular geography or asset class. A well-diversified portfolio should consist of a mix of geographies and asset classes (equities, bonds and cash, perhaps with a slice in alternative asset classes such as property and commodities). If you’re struggling to achieve this on your own, the Fidelity Select 50 Balanced Fund holds a range of funds – largely chosen from the Select 50 list of funds – in a single fund and works a bit like an ‘instant diversified portfolio’. You can find out more in the video below.
Five: Make sure you have a financial plan in place
It’s always best to invest with a financial plan in place so that you know what you want from your investments. When markets are volatile or a recession is on the cards, it’s natural to react emotionally and irrationally. At times like these it’s sensible to remind yourself of your long-term strategy and goals. If you need help with this, you can always talk to one of our financial advisers to get some personal financial advice.
Whatever you do, don’t panic
Making rash decisions like pulling out of the market to protect your investments - whether that’s your life’s savings or your pension - could potentially be the final nail in your losses coffin. Taking practical steps should help you feel in control. Bottomline? Keep calm and carry on when faced with a recession.
Important information: Investors should note that the views expressed may no longer be current and may have already been acted upon. There is a risk that the issuers of bonds may not be able to repay the money they have borrowed or make interest payments. When interest rates rise, bonds may fall in value. Rising interest rates may cause the value of your investment to fall. Funds in the property sector invest in property and land. These can be difficult to sell so you may not be able to sell/cash in this investment when you want to. There may be a delay in acting on your instructions to sell your investment. The value of property is generally a matter of a valuer's opinion rather than fact. Select 50 is not a personal recommendation to buy or sell a fund. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to one of Fidelity’s advisers or an authorised financial adviser of your choice.
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