What Investments do well in a recession?

Richard Hemming
A good investment strategy during a recession is to invest in Small Cap stocks, as they will do well. Under the Radar Report's performance showcases the potential of Small Cap stocks to grow your wealth, while at the same time reducing your risk during a recession. 

Small Cap stock do well during a recession

The key to understanding why investing in Small Cap stocks do well during a recession is to understand that when a small company grows, so does your wealth. While Small Cap stocks will be potentially very volatile, some relatively simple actions will ensure that your investments do well in a recession. 

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Recession Proofing your Investments

During a recession it is helpful to invest in Small Cap stocks that you believe in. Make sure that as an investor you understand the fundamentals of the Small Cap stock, which is where Under the Radar Report is essential. During a recession is it important to remain flexible enough to change your mind as the fundamental information changes, which is also where Under the Radar’s team of analysts comes in.

Cash is king when investing during a recession

By ensuring that both your portfolio, and many of its constituent portfolio holdings, have enough cash to survive a recession, both you and the companies you own can take advantage. Dry powder is a crucial part of your investment toolkit when recession proofing your investments.

Reducing investment risk to do well in a recession

Since it is very easy to buy exposure to the broader market, through ETFs or LICs, the objective of our investments in Small Cap stocks is to find and invest in companies with uncommon (and unappreciated) growth potential, or with a significant opportunity for earnings recovery or balance sheet reconstruction, which the bigger end of the market cannot offer.
The primary objective when investing and to do well in a recession is to ensure that it does not suffer an unacceptable level of downside risk from overexposure to any particular investment theme. Yes, I’m talking about diversification.

Diversify your Investments

Diversifying your investments will ensure you do well in a recession. There are many ways to achieve diversification for your investments, but some proved to be less effective in the COVID-19 crisis. Financial leverage, or a lack of it, is a form of diversification. Under the Radar Report’s Small Cap Portfolio more often than not favours companies with net cash balances, since they retain flexibility to determine their own destiny.
Essentially you should be looking to invest in companies you understand and that serve a range of different customers. These customers are the underlying strength of any business. The businesses you invest in should have different fixed and variable cost pressures and whose success rides on a variety of different themes.
Small Cap stocks are a great investment opportunity that do well during a recession. Building a diversified investment portfolio of quality Small Cap stocks will ensure you build, manage and grow your investments during a recession.
For Under the Radar Report’s latest advice on the Small Cap stocks to invest in during these times of uncertainty, sign up and take advantage of our EOFY special.

About the Author

Richard Hemming

Richard Hemming (r.hemming@undertheradarreport.com.au) is an independent analyst who edits www.undertheradarreport.com.au, which provides investment opportunities in Small Caps that you won’t get anywhere else.

Under the Radar Report is licensed to give general financial advice only (AFSL: 409518). The author does not own shares in any of the stocks mentioned.

Under the Radar Report is licensed to give general financial advice only (ASFL: 409518). The author does not own shares in any of the stocks mentioned.

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