What To Invest In During A Recession In Nigeria [2024 Guide]

Recession Investment: Should You Invest During Economic Downturns?

Yes, recessions can be an opportune time for investment. Property values and stock prices often decline during recessions, meaning your money goes further. However, you should choose investments wisely and consider partnering with an expert.

Invest in the right assets class.

Not every asset type qualifies as a recession investment. When investing in property, for example, certain types of properties tend to withstand recessions better. Residential property developments, in particular, remain in demand even during downturns. People will always need places to live, so residential rentals are a stable option. Commercial properties with long leases and high-quality tenants are also good recession-resistant investments. We recommend avoiding speculative commercial sectors like retail, as tenants in these properties may struggle to pay .

Work with professionals.

Navigating recessions and choosing suitable investments is challenging for novice and experienced investors alike. If you're looking to invest in real estate, consider seeking advice from property investment expert like AA Capital. We have the knowledge and experience to guide you through economic downturns and help build a robust property investment portfolio. While recessions create uncertainty, they also breed opportunity. With the right strategy and guidance, investing during economic downturns can lead to substantial returns as markets recover. Although we have briefly touched on property investment, there are many more asset classes and investments that are suitable for recession — continue reading to learn more.

5 Best Investments During A Recession

If you're looking to explore passive income investments that make your money work for you, even during a recession, then consider investing in the following

1. Real estate/property
2. Stock
3. Bond
4. Gold
5. Small business

Real Estate / Property

Based on past performance, property is one of the best investments during an economic downturn. House prices often decrease in value during a recession, allowing investors to purchase at a discount. Ones the economy recovers, property values historically rise again, allowing investors to sell at a profit

Stock

When stock markets decline significantly during a recession, it can be an optimal time to invest in this asset class. As Warren Buffett quipped, "Be fearful when others are greedy and greedy when others are fearful." Consumer-discretionary stocks with stable business models are good options in comparison to highly speculative or cyclical stocks. Businesses not tied to the economic cycle, like healthcare, consumer staples, and utility sectors, tend to be more resilient during downturn. Growth stocks also become more attractive valued.

Bonds

Bonds, especially investment-grade corporate bonds, are a popular investment during recessions. The reason for this is that as interest rates decrease, bond prices increase. Central banks' bonds provide fixed income and low volatility. They are essentially an IOU (I owe you) from the bond issuer, so they focus on high-quality investment-grade bonds. Data from the National Bureau of Statistics (NBS) showed that real Gross Domestic Product (GDP) grew by 0.51 per cent (year-on-year) in the first quarter of 2021, improved to 5.01 per cent in the second quarter, dropped slightly to 4.03 per cent in the third quarter and dipped further to 3.98 per cent in the 4th quarter of 2021. Longer-duration bonds tend to provide higher returns, and it is still a relatively safe way to hedge your portfolio.

Gold 

Gold is a hedge against inflation and market turmoil. Its price often rises during economic and geopolitical instability. For example, gold returned over 25% in the 18 months following the 2007 stock market crash. Gold also provides portfolio diversification due to its low correlation to traditional assets like stocks and bonds. You can invest in gold bullion, gold ETFs, gold mining stocks, or gold futures.

Small business

While many small businesses struggle during recessions, others thrive. Focus on businesses providing essential products and services, as well as innovative companies able to gain market share from weak competitors. Small business stocks and private equity investments can generate high returns coming out of a recession. Many successful companies like Microsoft, FedEx, and Starbucks launched or grew rapidly during economic downturns. With high risk comes high reward. Overall, while you have many options for investment during a recession, it's always essential to make an informed decision by working with an expert before making a decision. Also, while it's possible to profit from any asset class and investment options we've covered, real estate has historically performed better, with over 75% post-recession gain - a stark difference from bonds and stocks' volatile markets. 

Managing your investment portfolio In a Recession

Proper management is key to a successful investment strategy. As you prepare for a recession, your portfolio is likely to grow bigger. Here are some smart ways to manage your investments:

• Diversify your holdings.
• Increase exposure to defensive sectors.
• Actively manage your properties.

Diversify your holdings

During an economic downturn, it's crucial to have a diversified investment portfolio. Don't put all your eggs in one basket by investing heavily in a single asset class, sector, or region. Spread your investments across various asset classes like stocks, bonds, and real estate. Within each asset class, choose investments from different sectors and markets. For example, for stocks, invest in defensive sectors like healthcare and consumer staples in addition to growth sectors. For real estate, consider residential property developments in different locations. Diversification reduces risk and provides more stability to your portfolio

Increase exposure to defensive sectors

Defensive sectors like utilities, healthcare, and consumer staples tend to be less volatile during recessions. People still need electricity, medical care, and basic goods like food and household products, even during downturns. Consider starting a business or increasing your exposure to companies in these sectors. Their revenues and dividends are more stable, so their stock prices are less likely to decline significantly. For real estate, focus on properties leased to tenants in defensive industries. Their rental income will likely remain steady, and they'll continue to attract strong tenants

Actively manage your property 

For real estate investments, take an active property management approach during recessions. Work closely with a lettings and management company to keep vacancy rates low by offering competitive rents and incentives to high-quality tenants. Also, make necessary repairs and upgrades to ensure your properties remain attractive. Consider allowing temporary rent reductions or payment plans for trusted tenants facing financial difficulties - it's better to provide short-term relief than to deal with prolonged vacancies. Don't forget to stay on top of market conditions so you can adjust your strategy quickly. With active management, real estate investments can remain surprisingly resilient even in the worst 

The Best Investment During A Recession: Final Verdict

Our top pick for the best investments in a recession in the Nigeria is property. Real estate has historically been one of the most stable investments during economic downturns While real estate values may initially decline during a recession, they are primed to recover strongly once the economy starts to rebound. Other reasons we prefer real estate over other investment options are that it's a tangible asset, it's stable, and it offers diversification. To learn more about whether you should invest in property or shares, check out our recent guide.

Property as a Tangible Asset

Real estate is a tangible asset that holds inherent value, unlike stocks or bonds. Property can generate income through rent payments, even during a recession. As demand for rentals persists during economic instability, rental yields are likely to rise. Once the recession ends, property values and rents are likely to appreciate again, and you can sell them off for profits.

Diversification and Stability in Property

A recession often negatively impacts many asset classes, but real estate typically provides more stability and security. By diversifying your investment portfolio to include property, you can balance out the stock market volatility and other riskier investments. While property values may decline initially in a recession, they are less prone to the sharp drops frequently seen in the stock market.

Other Options to Consider

Beyond real estate, precious metals like gold and silver are popular recession-proof investments. Gold, in particular, is seen as a hedge against inflation and market volatility. Consumer staples stocks, like food and household goods, also tend to hold up well during economic downturns as demand remains relatively stable. For the risk-tolerant, starting a small business can be an option, but only for those with ample savings to sustain operations until the economy improves.

Final Notes To International Investors

Should you invest during a recession with AA Capital even if you're a non-resident? As an international investor, it's crucial to do extensive due diligence before investing in the African economy, particularly if the country is experiencing an economic downturn. While recessions often create anxiety for investors, the real estate still remains an attractive market for investors if approached strategically.

Before investing in Real Estate property or businesses, consult experts well-versed in the African investment landscape, such as wealth managers or financial planning advisors. They can advise you on industries and regions poised for growth despite macroeconomic headwinds. For example, some analysts predict that the technology and healthcare sectors may weather a recession well due to increasing demand for their products and services. Geographic areas with strong population and job growth, such as cities in the North and West, could also make strategic investments.

While recessions inevitably create uncertainty, the Real Estate remains an attractive market for the patient, strategic investors. If you're considering investing in property, consider setting up a free consultation with professionals like AA Capital. Our expert team will help you do due diligence to ensure the next recession —if any—presents an opportunity rather than a threat.

Frequently Asked Questions

What stocks to invest in during a recession?

During a recession, investing in real estate, stocks of consumer staples, utilities, money market funds, and healthcare companies is wise. These sectors offer goods and services always in demand, regardless of economic downturns, making them more resilient investment choices in challenging times.

What is the best thing to do with money in recession?

In a recession, it's prudent to save for an emergency fund, reduce debt, and manage your personal finance situation by investing wisely. Securing a fixed-rate mortgage can protect against interest rate fluctuations while reviewing insurance ensures adequate coverage.

Is it good to invest during a recession?

Investing during a recession can be beneficial, as lower stock prices offer opportunities for purchasing shares at a discount. If your finances allow and you believe in a company's long-term success, buying in a downturn can lead to significant gains. Before selling existing investments, consider the potential for long-term growth, which could outweigh short-term looses

How do you profit from a recession?

To profit from a recession, investors often target funds concentrating on consumer staples or large-cap companies, which typically offer more stable returns than smaller firms. These sectors are less volatile during downturns, as demand for essential goods remains constant, providing a potentially safer investment haven.

Conclusion

If you're thinking about what to invest in during a recession, Real Estate remains a solid long-term strategy. The market may fluctuate, but housing needs aren't going away.

Focus your investing on reasonably-priced property developments in economically diverse areas to balance risks. Consider both residential rentals, which offer steady cash flow, and flips, which can bring bigger returns. Stay patient and persistent, even when the market dips - the housing crisis persists, so quality properties will continue appreciating over the long run.

With the right property in the right location, investing during a recession can pay off big when the economy rebounds. The key is choosing investments wisely and maintaining them for the future rather than seeking a quick buck. Remember to always consult an industry expert to ensure you are making the right decision.

Contact AA Capital today for expert guidance on property investment.

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Disclaimer: Any information provided by AA Capital does not constitute financial advice and is for educational purposes only.