Few things are as simple and as endlessly complicated as money. When it’s up, it’s up and when it’s down, it’s down –except if you’re a businessman. Investor and philanthropist Warren Buffett once famously stated that ‘the market may go up, the market may go down, the economy may fluctuate, but there will always be intelligent things to do.’ And he’s right. There is no such thing as a bad time to invest. There are times when it’s much harder to invest and times when the risk of investment is much higher, but there’s no time that’s truly unsuitable for it. As risk accumulates, so does the reward. As the stakes climb, so does the potential profit. It’s all about how much you’re willing to lose, in order to win.
Investing in a recession can be very tricky, but if done right – it can catapult a company to overnight success. Here are some important steps to consider if you’re thinking about making a recession-backed investment.
Get In The Black
If you’re going to make a big investment during a recession, it’s important that your company is operating from a place of good health. Before deciding to invest, repay debts and repair your balance sheet. It can be useful to first try and reduce company turnover. A lean business is much more likely to survive an investment that doesn’t quite pan out right. If you have a ‘cash cushion,’ – a sum of money to act as a windfall in the event of an emergency, all the better.
Make The Recession Work For You
A recession can be the best possible time to begin investing. Asset prices are at rock bottom and stock, bonds, real estate and mutual funds can be picked up for next to nothing. Small businesses especially, can benefit from the scaling back of larger competitors. If you are already operating at a leaner, more efficient capacity than your rivals – you won’t have to waste time drawing up or implementing reduction plans. You will simply be able to poach business from competitors who are otherwise occupied. It may sound cruel, but it’s true. All is fair when it comes to business and a competitor’s loss should be your gain. Small, intelligently run companies can thrive in a recession – the less you have to begin with, the less you have to lose when you start out. The Telegraph suggests choosing ‘low cost funds that are adequately diversified, in order to reduce and control risk.’
Don’t Get Cocky
Be sure to carefully consider all investment decisions. Do not jump into a big deal feet first. Assess how much risk you are willing to take, how long you can afford to invest and how many of your own assets are expendable. Always be suspicious of investment opportunities that purport to offer guaranteed returns. There really is no such thing. Keep a reasonable cash cushion around, just in case.
Diversify Your Assets
Creating an ‘all seasons’ portfolio is a great idea, especially in a recession. Rather than speculating about which funds might be best to invest in, it’s better to simply invest in a spread of different areas – a little in equities, a little in bonds, a little in property and a bit in commodities. This gives an investor the best possible chance of success, as different investments do well in different economic conditions. Having an ‘all seasons’ portfolio could help you to weather all circumstances – good and bad. Anne Brennan of The Fiscal Times suggests that small businesses consider investment in a diverse range of areas – everything from art, to agriculture and even education.
Remember, the key to successful investing is the reduction and control of risk, not necessarily the gaining of profit. The latter cannot be won without the former.
Sue West is an investment broker who offers advice to small businesses. She recommends BradyPLC.com for high quality risk management solutions. Sue can be found online blogging about a variety of financial investments.