‘Recession’; this word seems to continuously loom over discussions that have to do with the economy and even though Nigeria isn’t in one at the moment, there are speculations that we may be heading towards another. A country is said to be in recession if its Gross Domestic Product (GDP) (the value of all the goods and services produced in Nigeria) has fallen over two consecutive quarters.
Nigeria recorded a recession in 2016, followed by a second recession in 2020, forced by the COVID-19 pandemic, which caused a significant decline in oil revenues as global economic activities stalled for months. There are current opinions stating that we may enter into another recession at the end of 2022, if not deliberately unavoided, since inflation measured on a year-on-year basis has grown from 17.17 per cent as of May 2022, to 18.6 per cent as of June 2022.
Regardless of these postulations, there is hope. The impact of a recession can be dire, affecting earnings and employment but even during a recession the stock market still offers a great prospect of growing wealth for those with a long-term view.
The following tips can help you in investing during a recession:
1. Don’t panic: Keeping long-term gains in mind, it is important not to panic and rush to sell shares. Recessions have come and gone, and it is best to ride out the wave to prevent potentially losing out on gains when there’s a recovery.
2. Add small, frequent amounts into investments: Endeavour to establish a habit of saving into your investments. Buy shares a bit at a time, this can help you add to your investments when share prices are low. During a recession, it is more than likely that the price of stocks will be low, take this advantage to invest in undervalued companies that will prosper in the future.
3. Diversify and spread risk: In truth, don’t put all your eggs in one basket. Diversification is important for your investment strategy. Spread your risk by holding a mix of shares and bonds across a range of industries, companies and countries. Consider choosing a brokerage firm that can help you invest in ready-made portfolios.
4. Choose investments wisely: Certain industries have been seen to withstand a recession due to the key services or goods they provide such as consumer staples, energy, healthcare, communication services and more. Make sure to deeply research companies before investing in them and make sure they do not have a high debt profile compared to their assets.
5. Be patient in the wait for dividends: Earnings from shares pay off more in the long-term and be patient to reap where you have sown.
Disclaimer: This content is for informational purposes only. You should not construe any such information or other material as legal, tax, investment, financial, or other advice. Talk to a financial expert before you make an investment move.
There are risks associated with investing in securities. Investing in stocks, bonds, exchange-traded funds, mutual funds, and money market funds involves the risk of loss. Loss of principal is possible.