The word recession might leave a bitter taste in your mouth. But it’s part of the cycle of economics. Recession follows on from what is called a late cycle economy where growth begins to dwindle. The UK has had eight major recessions since the 1940s.
Luckily there are strategies available to limit portfolio losses and even etch out handsome gains during a recession. Investment trusts or closed ended investment companies have a revenue reserve that they build up during the good years when dividend returns are more favorable, that they can set aside to top up income paid out to investors in periods of economic downturn when the companies in which they are invested cut or stop their dividend payments.
You can also mitigate risk by weighting your portfolio into markets and sectors that have historically bounced back from recessions of which there are many. You should also consider that during market downturns share prices are generally lower so you are able to buy more shares in a company for the same overall investment.
Professional investors often like to hold cash when they think a downturn is coming so that they are ready to invest. Whichever way you decide to go you shouldn’t consider a recession as big, bad and scary. Instead you should design your portfolio in a way that can help you weather the storm.
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