"Enjoy the Ride" and Other Tips for Recession Investing

By Clinton Douglas IV

We never outgrow cotton candy. However, for most of us, extreme roller coaster rides lose their thrill and appeal around age 18. We may not want to go back to the kiddie coaster, but unexpected upward jolts and never-ending falls can only stir excitement so many times before you have to say ‘enough is enough’.

When that roller coaster ride involves hard-earned cash acquired exhaustively through day-after-day of the nine-to-five grind, those jolts can become cause for serious panic. A 200-point drop in the DOW can easily translate into thousands of dollars in losses for a single person.

It’s one thing to watch your investments double to your favor as they did during the dot com boom or the housing bubble. But when the same happens in reverse, as many people have lived through in the last two to three years, it can be downright exhausting. Many portfolios have taken a blow more than once, with hopes rising here or there only to fall once more following another downswing when the nation hits a phase of political turmoil, a rise in jobless claims or mere skepticism.

But downswings can also provide their own cause for celebration. The savvy businessperson knows how to use the situation to their advantage: take your hands off of your eyes and enjoy the ride.

Step Back: While it feels like taking a step off a cliff for many, especially for those investors nearing retirement, the global economic downturn is but a minor set-back when you look at the greater picture. At 11 Wall Street, New York, NY, the trading floor of the New York Stock Exchange will always remain the center point of unpredictability – short sales and bulls, prosperity and devastation, bells and brokers. Any successful portfolio manager will tell you that the key to survival is maintaining one’s focus on the long-term picture.

There will always be tempting propositions that seem like a good idea. But history shows that planning and due diligence usually pay off in the long run. Timing the market simply doesn’t work; even the most complex of trading computers lack the intelligence and capability to guarantee consistently upward growth. If you have only moments to decide before the offer expires or if an investment requires constant readjustment, as is the case for day traders, it’s probably not worth the risk. This type of sale is best left for late-night infomercials – not your retirement savings. Shooting from the hip is never wise, even in old Westerns. A shrewd investor will look 10 to 20 years down the road and let the market take its due course.

Grab a Bargain: There are always two sides to the coin. When faced with a downturn, you can focus on the loss or consider the prospects of bargain-basement shopping. For those aged 30 or younger, a down market is prime for snatching an undervalued gem and enjoying the perks of appreciation over the next few decades.

Since 2008, prices have fallen for many of the same investment mediums that soared just a few years prior. From stocks that sell far below actual value per corporate earnings, to rock-bottom real estate properties and foreclosures, those with the means and a glass-half-full outlook can still reap a powerful return on new, well thought-out investments. Why not follow the mantra of Warren Buffett himself: “A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful.”

Take an Alternate Route: Since stocks took a nosedive in September 2008, investors have been scurrying to find greater stability and, ideally, equally lucrative growth. As a result, they’ve tested several alternatives to the stock market – from gold to cash equivalents.

The safest route, but that which has the least likelihood of growth, is that of an FDIC-insured high-yield savings account. Savings accounts are as easy as visiting your local bank and depositing the minimum required to open an account. Note: those who opt for this route do risk loss once inflation shifts into overdrive, which is inevitable.

Like a teeter-totter, stocks rise as bonds fall and vice versa. This has prompted many investors to either shift assets from stocks to bonds, or to diversify their portfolio balance to be more weighted in bonds with high hopes for moderate growth.

Many investors have also jumped into the real estate market, an area sure to rise given it is currently at a nearly all-time low. Even without obvious liquid assets with which to invest, the trillions of dollars sitting in American 401(k) plans and IRAs can provide a means for private banking. Those who borrow money from their IRA to invest in real estate today could realize a notable profit down the road once the market begins to stabilize and grow again.

Keep Growing: When a pipe leaks, you call a plumber. Investing, too, is something best handled by experts. Hire wisely and trust the expertise of fund managers and financial planners. Read blogs to stay current on investing topics. Investors also find valuable commentary, ideas and insights in leading trade publications.

Guide decisions based not on where we are, but on where you want to go. Then sit tight while the storm rolls through. While others flee from fright, today’s investors have a rare opportunity to buy low and grow tremendous wealth.

Read other articles and learn more about Clinton Douglas IV.

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