Fixed rate debt, locking in low rates in undervalued assets prior to rate hikes, before the Fed pivots and starts hyperinflation so you own a house (while everyone else is sidelined in hyperinflated cash/high interest debt)
During a downturn with rate hikes, a possible sovereign debt crisis and commodities/inflation possibly moving higher, look at high yield treasury bonds
max out series i bonds
- $10k per person or company
- 9.62% yield atm
- state tax exempt
if you have a lot of extra cash and no debt or low interest fixed rate debt, then park it in a no penalty CD, savebetter is paying 3% CD atm, no penalty, withrdaw anytime
then park the rest in 2-2.5% savings accounts atm
Investments have less to do - at this time - with a recession or a looming recession so much as the impact of federal monetary policy.
"Don't Fight The Fed"
If the fed is trying to actively cool down the economy by raising the interbank lending rate, this increases the price of capital for all companies. This also incentivizes people to not invest in companies - if they can get a "Risk Free" return from treasury bills of 4.5% today why would they invest with a 100% risk asset.
So no, forget 'recession' instead change your question to 'whats the best investing strategy to have during a period of monetary tightening' - and that is, in general, to not be investing until you think the period is over. Good luck with that one.
An inflationary bear market with federal monetary policy tightening and you suggest bonds? Really?
Unless they are IBonds - what rationale do you have for this and what would have been the return on invested capital if you did this anytime in the last ~6-8 months.
The best strategy to invest (with the goal to make money) at any period in economic cycles is have more accurate information than other people.
If you are worried about economic outlook, instead of investing money into financial instruments, invest time and some money into increasing your own personal value by learning new skills.
starting a business (that produces things people need rather than want)
as far as investments like stocks or bonds... i am largely sitting in cash since the invasion of ukraine. when things get bad enough (and the fed pivots) then i will buy stocks.
or you could just DCA if predicting macro trends isn't a fun filled activity for you (it is a hobby of mine).
I'm not advising anybody what to do, but the argument is that you'll be able to find good investments for a heavily discounted price if there's some real economic panic and everything crashes for a while.
The inflation loss you take from holding cash for a bit might be more than offset if/when the economy recovers and you've got something at a steep discount.
Not going to claim I have any great knowledge on this at all, but I stuck a chunk of cash into a moderately low risk ETF 6 month ago. It's gone down relative to the cash that is still in the account.
There are different types of inflation. When inflation is due to ongoing currency debasement you might see all things rising in price (goods and asset prices). This is not what’s going now. We are in a tightening cycle. Cash is appreciating in value relative to speculative assets
I think it's very important to understand the root causes of the changes in the economy, and have a good model to use in predicting the future and planning your course of action.
There are a number of factors in play currently that go beyond the normal boom/bust business cycle.
Inflation is high. Your money is worth substantially less every month in this economy. I personally had a fair amount of cash lying around, so I am doing as many major home improvements as possible.
There are additional risks associated with shorting stocks, for example:
- When you buy a stock normally you can basically hold it indefinitely even when the price tanks. When you short a stock and it goes up, at some point your broker will have to force you to recall your position and you'll have to realize your losses
- When you buy a stock normally the maximum amount you can lose is the original investment amount. When shorting a stock, before a forced recall, in theory the downside is unlimited (and the upside is limited).
- stonks go up (in markets that are generally doing fine), so in general it's not a good idea to keep a short position on markets (unless you believe the country in question is trending towards destruction). A recession may come but stocks don't necessarily have to reflect the actual economic conditions in the short term.
In general, I'd say use it sparingly. Probably not a sound "investing strategy" but more of a short to mid term speculation tool, or a tool for hedging long positions.
During a downturn with rate hikes, a possible sovereign debt crisis and commodities/inflation possibly moving higher, look at high yield treasury bonds
max out series i bonds - $10k per person or company - 9.62% yield atm - state tax exempt
if you have a lot of extra cash and no debt or low interest fixed rate debt, then park it in a no penalty CD, savebetter is paying 3% CD atm, no penalty, withrdaw anytime then park the rest in 2-2.5% savings accounts atm