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Real Wealth Network
Searching Planning to Invest during a Recession
By Saghir A. Aslam
Rawalpindi, Pakistan
(The following information is provided solely to educate the Muslim community about investing and financial planning. It is hoped that the Ummah will benefit from this effort through greater financial empowerment, enabling the community to live with dignity and fulfil their moral obligations towards charitable activities).
It’s come to this: Even fairly bullish outlooks about the US stock and bond markets are beginning to assume that there will be some kind of a recession.
The question is what kind – shallow or deep, a full-bore recession or a milder downturn. While steeply rising interest rates are making a slowdown in economic growth all but inevitable, there are many possible varieties of recession, and they suggest different market outcomes.
Deep recessions are horrible experiences for most people, including investors. If you are living off your holdings, with no margin for error, you need safe, fixed-income assets. But if you are lucky enough to have a long horizon, of a decade or more, the best approach may be to keep buying and holding stocks and bonds, even if conditions worsen. Looking at what’s going on at the present we will be inversion for sure but the question is how short, how small, and how deep it will be, and how long will it last. My gut feelings are we will have somewhat like a medium which won’t last long.
Taking a recession into account
The quasi-official National Bureau of Economic Research defines a recession as "a significant decline in economic activity that is spread across the economy and that lasts more than a few months."
A classic, deep recession would throw millions of people out of work. But the unemployment rate, at 3.5 percent, is as low as it’s been in 50 years. This doesn’t look like a traditional recession, at least not so far. Yet it’s easy to see why a recession has come to seem so likely that Bloomberg has put the odds of one occurring in the next year at 100 percent. Inflation, and the efforts of the Federal Reserve and other central banks to combat it, are at the heart of the problem. Until inflation comes down, the Fed says it will keep raising rates. That will slow the economy.
So, it is especially important to make sure you have put aside enough money to pay the bills. Once you are ready to invest, a wide range of academics recommend low-cost stocks and bonds in index funds that mirror the entire market.
Investing is forward looking. There are a number of ways to interpret current trends that provide a fairly positive outlook for investing, depending on the type of slowdown that may be coming and on your horizon as an investor. None are certain but these narratives are spreading in the markets and, if only for that reason, they are worth considering. To be continued next week.
This article is written in collaboration with Walt Hommerding senior vice president investment of Wells Fargo .
(Saghir A. Aslam only explains strategies and formulas that he has been using. He is merely providing information, and NO ADVICE is given. Mr Aslam does not endorse or recommend any broker, brokerage firm, or any investment at all, nor does he suggest that anyone will earn a profit when or if they purchase stocks, bonds or any other investments. All stocks or investment vehicles mentioned are for illustrative purposes only. Mr Aslam is not an attorney, accountant, real estate broker, stockbroker, investment advisor, or certified financial planner. Mr Aslam does not have anything for sale.)
