Investing Advice to Capitalize on a Down Economy to Grow Your Money

Many small investors have learned that the recent downward trend in the economy has caused the value of their investment portfolios, including their retirement nest egg, to decrease in value. Unfortunately, this has led some to conclude that there’s simply no way to grow their investments when the economy is hurting, and that they shouldn’t be trying to invest.

Nothing could be further from the truth. Every investment transaction has at least two parties, each of whom has a different opinion on the value and potential upside of whatever asset is changing hands. This means that there’s always money to be made.

Here is some investing advice and tips on how you can capitalize on a down economy.

• Recognize Buying Opportunities. Recognize that even when the economy goes through a period of decline, not every business or investment opportunity declines with it. Some investments will be able to maintain their value throughout the down economy, and some others will thrive in such an environment. As you’re doing research on various investment candidates, look for businesses that you believe other investors are not undervaluing.
• Focus on Income Generating Investments. When the price of various investment types is expected to remain flat for any significant period of time, it’s often advisable to consider investment classes that have a strong and reliable income stream. Dividend paying mutual funds and stocks, Real Estate Investment Trusts and corporate bonds can often be outperforming investments in a down market.
• Hedge Your Investments. Even for small investors, it’s possible to hedge the risk of certain types of investments and grow their overall portfolio value even if the broader markets are going down. For example, many publically traded stocks have stock options that have high trading volumes – this makes it relatively easy to hedge some of your stock holdings by taking options positions that protect you against price declines.
• Stay The Course. You should reevaluate your investments from time to time, to make sure that you’re still invested in mutual funds and stocks that make sense for your investment outlook and your portfolio. But if you’re still bullish on a particular investment, don’t let the decline in price prevent you from investing further. In fact, continuing to make regular purchases of a particular investment when the price is down (known as dollar cost averaging) can be a great path towards long term success in your portfolio.
• Consider Alternative Investments. Finally, when the economy is down you might want to consider different types of investments from your normal portfolio purchases. For example, you might start investing in tax delinquency certificates as a way to boost your overall investment return. Just make sure to do enough research that you’re comfortable with these alternative investments.

A down economy doesn’t have to be something that destroys the value of your investment portfolio. In fact, if you educate yourself well enough you may be able to grow your investment portfolio during a down economy.