"Australia is heading into a recession."
Those words were in the opening sentence of an article in Monday's The Age.
Indeed, the 'R word' has been thrown around a lot lately.
Recession, or no recession?
It's a question on everyone's mind and the latest growth figures, released by the Australian Bureau of Statistics, did little to appease the market's anxiety.
The data showed that Australia's gross domestic product, or GDP, grew just 0.2 per cent in the June quarter. That's down from 0.9 per cent in the previous three months, with our annual growth rate now sitting at just 2 per cent.
By definition, a recession is two consecutive periods of negative growth. Last quarter's expansion means we'll technically avoid that situation for at least six more months, but some economists are pricing in a 50 per cent chance of recession in the next year.
Others are saying its "unavoidable".
Maybe they're right – I have no idea what will happen in the near-term. But I'd like to draw your attention to the first part of the sentence from The Age's column, which is even more important than the latter, which I quoted above:
"Don't waste any time worrying about it."
The truth is, recessions are unavoidable!
Australia has been lucky enough to avoid one for the last 24 years, but they're still a normal part of the economic cycle.
The same thing goes for a sell-off on the sharemarket. The S&P/ASX 200 (ASX: XJO) closed at 5030 points on Monday – its lowest close in two years – and down 16.1 per cent since April.
The financial media have been quick to spread the doom and gloom, and investors have been quick to let it dictate their emotions.
My advice? Don't panic.
In reality, there is nothing so unusual about a 16 per cent fall in share prices. In fact, investors should expect such a fall to occur every four or five years, as can be seen in the chart below.
What can also be seen is that the market has recovered after each fall, making those investors who held on for the ride some very nice gains.
It's what happens when share market's crash.
Mark my words, this latest setback will be no exception. Markets almost always hit record highs again — it's simply a matter of time.
In fact, the investors who are brave enough to buy into the panic are the ones that will be most rewarded over time!
But that does introduce one key challenge: what shares should investors buy?
Unfortunately, it's not as simple as throwing your money behind the Big Four banks anymore.
For so long, the banks acted as the key driving force behind the ASX's record-breaking rally. A strong economy, a booming property market and record low bad debts led to enormous growth, which translated into market-smashing returns and glorious dividends.
But times have changed. Companies like Commonwealth Bank of Australia (ASX: CBA) and Westpac Banking Corp (ASX: WBC) have been crunched over the last six months and, in my opinion, remain overpriced.
Making matters worse, some analysts have questioned the banks' ability to maintain their dividends should times get tougher. At their current prices, that's not a risk I'm willing to take.
So if not the banks, where should investors turn?
That's where Andrew Page comes in. Here's our resident dividend expert, and lead advisor of our subscription-only Motley Fool Dividend Investor service.
One company Andrew likes is BWP Trust (ASX: BWP), the property trust behind most of the Bunnings Warehouse stores.
You can read the full investment case, and about BWP Trust's attractive 5 per cent dividend yield, in our free Motley Fool Million Dollar Portfolio companion site. Simply click here to access all the free content — including stock picks usually reserved ONLY for our paying subscribers.
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These are not any old stock picks, mind you. They come directly from our three subscription-only stock picking services being Motley Fool Share Advisor,Motley Fool Hidden Gems, and Motley Fool Dividend Investor.
Matt's task is to choose the very best ASX stocks from each of those services — growth stocks, small cap stocks and dividend stocks — and weave them into a specially crafted "bullet-proof" portfolio, in full view of Motley Fool Million Dollar Portfolio members.
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