Where to Invest in a Recession

By Charles Forman

I want to start by saying I am a college student who is not qualified to give financial advice, so do your research before putting your life savings into something.

The global economy is on the brink of collapse. COVID already decimated it, and it seems that with Inflation and the global housing bubble, it will be hit with a second wave. The United States government did a good job of containing COVID to ensure it wasn’t so bad by raising inflation, but it was the equivalent of putting Flex Tape over a leaky hole in a water pipe; it’s a temporary solution to a permanent problem. The stimulus checks caused a rise in inflation, and now there is an “everything shortage” as economists call it. Looking abroad, the Chinese Lehman Brothers, a developer called Evergrande, are about to meet a similar fate as their American counterpart, which may lead to hundreds of thousands of foreclosures within China. While what happens in China does not have a direct effect on the US, the less money they have to buy US products, the worse it may get for our country.

So what are the implications of this on Binghamton University? Well, not really much. Students tend to have minimal effect from a recession because many are not working. However, many people may still be relying on their stock gains over the last year as the S&P went up 27% in the last year, which is more than average. Part of this has been caused by people who think the economy is growing. Moreover, apps like Robinhood have led to the rise of day-traders, further exacerbated by Internet influences, including but not limited to Dave Portnoy, Reddit, and the media. A result of the increased interest in investing is the phenomenon known as “pumping and dumping”. This occurs when a stock is artificially inflated by companies who convince individuals to buy a specific volatile stock, then sell their shares to profit as the stock crashes down. Part of what has fueled the housing boom in the United States are these stock gains. However, the market has not had a real correction since 2008. Therefore, we are in for a rude awakening. COVID made it go down by a bit, but there is the risk of a much larger crash.

Therefore, I have written a short list of the best and worst places to invest in during a recession. Pick what you like or don’t, but always remember to do your research when putting your money somewhere.

Safest places to invest in a reces-

sion:

Cash - Inflation will bite, but your money will likely stay at a solid, without too much up or down.

Commodities - Gold, Silver, Food, Energy. These will likely hold value as they are basically the antithesis of recessions. They hold value no matter if the stock market is up or down. Of course, they have their own individual up and down days, but you can count on these commodities to hold their value during a recession. Furthermore, the biggest focus should be on gold, because there is a demand for gold, and it is considered a safe investment by many.

Fixed income - Real Estate, Dividend stocks, Bonds. Get your income instead of an increase in value. For example, companies like AT&T will give shareholders 52 cents per share per financial quarter. It gives you cold hard cash instead of a share of a bigger company. So while $T (AT&T stock) may have declined, it doesn’t necessarily mean that you won’t make money. You are free to do with that money as you wish. You can reinvest the money or use it toward other purchases.

Certain ETFs and mutual funds - Investing in an Exchange-traded fund allows for portfolio diversity and allows you to hedge your bets in one investment. Achieving the diversity that an ETF offers allows investors to mitigate risk. Just make sure that the operating expense is not too high (<.5%). Furthermore, it is important to understand that there is still some risk, and certain industries can be risky investments.

Worst places to invest in a reces-

sion:

Individual stocks - Especially stock like Gamestop, AMC, Blackberry, or other “meme stocks”. These are unreliable forms of investments. In addition, there are many companies that have received hype that have been fraudulent. Notable examples include Nikola, whose CEO defrauded investors by lying about a working product. Other examples include Theranos, whose CEO, Elizabeth Holmes, is currently on trial for also defrauding investors. It is easy to lose a lot of money really quickly, especially if you do not have a lot of experience trading.

Real Estate - This can go either way; it can be very safe, but it can be very dangerous. If the market tanks (which it could, considering we are in a bubble), your house or other investments can lose value quickly. Indubitably, if you are invested in a mortgage-backed security, you could lose a lot of money if a lot of people start defaulting on their loans.