You might be wondering what is the best way to invest in a recession.
The S&P/ASX 200 Index (ASX: XJO) has crashed 22.10% lower this year and we're well and truly into a bear market. Some big names have lost more than 80% of their value in the space of a few weeks.
A recession occurs when we see two consecutive quarters of negative GDP growth. Given the coronavirus-induced economic shutdown, that looks inevitable in Australia and around the world.
So what's the best way to invest your money if we hit a recession in 2020?
How can I invest in a recession?
Recessions can get really ugly, really quickly. Australia isn't in a recession yet but it seems pretty likely by September or so.
One thing to remember is to never invest more than you can afford to lose. That's why I like to focus on fixing my finances first before looking to invest.
There are a few different options if you want to invest your money in a recession. You could simply hoard cash and build up a big stockpile to invest afterwards.
This is certainly a more conservative approach. However, you might miss out on some of the best bargains of your life by waiting on the sidelines.
Hoarding cash might be useful if you're saving for a big asset purchase like a house, but not so much for ASX shares.
What's the best way to invest?
The best way to invest in a recession is to find some absolute bargains. This could mean undervalued property or ASX shares.
The liquid nature of ASX shares means they trade daily and the share market is inherently forward-looking. That means you don't have to wait several years for the property market to drop because ASX shares are already on sale today.
If you're looking for an income boost in 2020, you could buy ASX dividend shares like Fortescue Metals Group Limited (ASX: FMG).
Perhaps you're investing in a recession but are bullish on the market in 2021, so you might look at growth shares like Xero Limited (ASX: XRO).
Whichever ASX shares you choose to buy, today could prove to be a once in a lifetime buying opportunity.
