How to Remain Immune From Economic Downturn

We are passing through a difficult economic phase. The perception for overall economic growth and financial wellbeing is highly negative. The returns on Standard and Poor's index 500 are believed to be the worst since 1991. Many investors are staying on the sidelines now with cash.

Since most of the people are worried about the looming difficult times ahead, there are many safe strategies that investors can pursue in order to protect their investments.

Non-Cyclical Stocks

These provide an excellent defense against economic hardships. Most important in this category are food, grocery, energy and health stocks. These are the things of primary necessity. People will have to buy them in any economic condition. The demand for their products is bound to remain strong. So investing in these types of stocks will provide an excellent safety net. A good portion of one's portfolio should always remain invested in these non-cyclical companies.

Not only that these stocks constitute a good defense against economic recessions, they are also a long term hedge against inflation. Many of them can actually even record growth in bad times. During normal times these are believed to record a double digit growth.

Insurance Sector

Like basic necessities of life, people will always need insurance. Life and property insurance remain in demand even in worst conditions. Not only that they weather slowing business, they also provide large payouts. Stability in their prices has always rendered them quite popular amongst the investing public.

Banks are also a good defense against recessions. These are not likely to fall as much as the overall market. In fact ones amongst them which do not have too much exposure to risky lending will do better. Investors need to watch out for them.

Investing in Energy And Health

Energy and health sectors will always remain the favorites. The most important in this category are obviously the oil and pipeline companies. One can always find underdogs in them with high potential. With oil prices expected to remain above $85 now, energy stocks will continue to perform well.

Another emerging area within the energy sector is the non-renewable energy. However, one has to be careful here. The main difficulty with this group is that many of them are still non-economical. With higher energy prices, they can come into the limelight. Some efficient of them can provide excellent returns in the times to come. Watch for companies developing wind energy.

Positioning For Long Term And Short Term

A balanced portfolio should consist of both long and short term investments. While cyclical stocks can be short term investments, many times non-cyclical will be good for the long term.

Other Resource Companies

In addition to grains and natural gas, other resources can be gold, silver and other mining stocks.

Global Diversification

Diversify globally. The world is no longer dependent too much on any particular country like the US. One should have a good mix of countries for the purposes of investment. If one has a good balanced portfolio, under-performing countries can be compensated by over-performing ones.

Cash

One should always do a cost benefit analysis. You can also consider preserving cash for taking advantage of cheap investments in falling markets. But one should not hold to cash for a long time.

Learn more about this author, Altaf Sahibzada.
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