Although the stock market is the highest it’s been, experts predict that the economy may be teetering on a weakened economy.
Just last week, the S&P 500 reached a high of 3,000 but interest rates have declined, which is a telltale sign of a looming recession, according to Chuck Self, chief investment officer with iSectors an investment outsourcing firm headquartered in Appleton, Wisconsin.
“When interest rates are declining, it means there’s less demand for debt and economic activity is slowing,” Self told Newsmax Finance.
But preparing for a possible recession doesn't mean parking cash in a bank or under a mattress.
Here are three plans of action:
1] “Investors should be decreasing risk from stocks, shifting from equities to bonds and building a defense against a possible recession,” he said.
Defensive sectors include stocks with high dividend yields that are not as susceptible to what goes on in economy, utilities, Treasury bonds, consumer products and Real Estate Investment Trusts (REITs).
“Stay invested in something,” Self said. “Don't cash out.”
2] Interval funds and other types of registered closed-end funds (CEFs) can also be attractive during a recession because they are actively managed and provide a plan for liquidity, according to Kimberly Flynn, CFA, managing director of alternative investments at XA Investments who advises accessing alternative investments in an interval fund by buying stocks.
“Investment vehicles like listed CEFs, listed REITs, listed Business Development Companies (BDCs) fall into this category and they can be purchased using the fund’s ticker symbol just like a stock,” Flynn told Newsmax Finance. “If your employer allows a self-directed option within your 401(k) plan, investors can bypass the employer fund selected options and access these interval alternative investment choices.”
3] Whether real estate is a good investment during a recession depends upon the region of the U.S. and whether the property is commercial or residential.
“We’ve seen both commercial and residential real estate pricing and activity rise across the nation over the last 30 months,” said Johnney Zhang, founder and CEO of Primior, a Diamond Bar, Calif. real estate investment and management firm with more than $400 million in assets under management. “There’s also been growth in new single-family home sales as well as multifamily and housing starts.”
One of the most significant changes to the real estate industry was the implementation of the 2017 Tax Cuts & Jobs Act. Specifically, it created the Opportunity Zone Program that is designed to revitalize economically distressed communities through long-term private investment.
“Investors in Qualified Opportunity Zone Funds benefit from substantial federal capital gains tax incentives available exclusively through the program,” Zhang told Newsmax Finance. “This has caused real estate values in these zones to increase significantly and will add short-term and long-term jobs to the areas. Moreover, in comparison to other programs that encourage private investment in low-income areas through tax advantages, the Opportunity Zone program is less restrictive, costly or reliant upon government agencies.”
Juliette Fairley is an author, lecturer and TV host based in New York.