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9 Best Investments to Make During a Recession With Volatile Markets

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The United States’ outbreak of the coronavirus-caused COVID-19 pandemic in the first months of 2020 has led to a lot of market volatility. According to CNBC, three of the five worst days in the history of the Dow Jones Industrial Average have come in March alone.

Though the pandemic is an uncommon situation, market volatility and falling stock prices are not. There have been bear markets throughout the years, each caused by different economic conditions. One thing remains true throughout each bear market: Investors always look for a way to reduce their losses and find stability for their investments.

In a volatile or falling market, there are investment opportunities. Understanding what those opportunities are and how to take advantage of them can leave you poised to succeed when the economy returns to normal.

What to Invest in During a Volatile or Falling Market

If you find yourself looking for investment opportunities, these are some of the best things to invest in during a volatile market.

1. Yourself

When the economy drops or things become volatile, many people find themselves out of work or looking for new opportunities. Set yourself up for success by investing in yourself.

One way to invest in yourself is to work on a degree. College can be expensive, but there are cheaper ways to earn a degree. Community colleges or state universities can help you cut the price of an education. If you’re past the typical college age, there are many scholarships specially designed to help older students.

Even if you don’t want to attend college, certificates can help you break into a new career or increase your income. For example, people in Internet technology can look into certifications from major companies like Cisco or Microsoft. Or you could look into taking online courses from some of the top institutions through edX.

Depending on how long your education program takes, you can spend most of the down economy in training and graduate into an improving job market.

2. A Business

When the market is doing poorly, it might seem like a crazy idea to start a business. If established companies are struggling to survive, how can a new one hope to succeed? But if you lose your job or have extra time outside work, think about what opportunities you see around you.

Are real estate investors buying lots of homes on the cheap? Go into home repair and try to find work helping real estate investors fix up old houses. Are people looking to trim their budgets by cutting out luxuries? Try offering less expensive but still high-quality goods such as homemade foods. If you know your way around computers, provide your services to help people keep their older PCs running for another year or two.

There are plenty of side businesses that don’t require significant cash investments and can turn into a full-time career. Even if you don’t take your business full-time, it can turn into a second source of income and make it easier for you to weather future economic uncertainty.

If you like the idea of investing in small business but don’t have a business idea yourself, try investing in something like Worthy Bonds, which help finance other entrepreneurs who start their own businesses.

3. Fine Art

If you’re worried about investing in the market, you also have the option to turn to alternative investments such as fine art. Art doesn’t pay dividends or interest the way stocks and bonds do, but there is a chance the artwork gains value over time as it becomes more appreciated or the artist gains fame.

Startup companies, like Masterworks, make it easy to invest in art from famous artists. The market for art is very different from other types of investing, so you should only invest if you know what you’re doing or aren’t investing money you can’t afford to lose. Still, investing a small amount can be a unique way of diversifying your portfolio.

4. Real Estate

When the stock market drops and the economy falters, real estate prices also tend to drop. Renters have trouble paying their bills, and landlords struggle to find new tenants, meaning that rents usually decrease. With few buyers and more people looking to sell their homes, housing values also tend to fall.

Combine a weak real estate market with the fact that the government usually cuts interest rates to try to boost the economy, and real estate investment becomes attractive for people who have the opportunity to buy.

If there aren’t opportunities in your local market or you want to diversify into multiple real estate holdings, consider purchasing turnkey properties across the country through Roofstock. Alternatively, a real estate crowdfunding service like Fundrise or AcreTrader can help you invest in real estate indirectly.

Even if you just buy a home you intend to live in for the long term, buying in a weak market means you can secure a low monthly payment. That gives you more flexibility in your budget and more cash you can deploy to other investments.

5. Precious Metals

Some investors like to use precious metals, like gold and silver, as a hedge against bear markets and inflation. The idea is that these metals retain some form of intrinsic value even as governments affect the value of their currencies.

You can invest in precious metals in a lot of ways. You can buy metal bars and coins, storing them in your home or a storage facility. You can also open an investment account through M1 Finance and purchase shares in a mutual fund or ETF that tracks the price of a metal.

Another strategy for investing in precious metals is to buy shares in mining companies. That gives you direct exposure to the metal and its value without the need to worry about storing coins or bars. Of course, investing in an individual company adds additional risk.

6. Cash

When stocks do poorly, some investors move money out of the market and into cash. Cash is one of the most flexible asset types, and it’s incredibly safe. The Federal Deposit Insurance Corporation offers up to $250,000 in insurance for cash deposits per account type per bank. That means you can put $250,000 in a savings account and $250,000 in a checking account and have all $500,000 insured by the government. You’ll get your cash back, even if the bank goes under.

Of course, cash doesn’t offer the returns that securities like stocks or bonds give to investors. However, it’s easy to deploy your money in new opportunities as you find them, and you can always use the cash to cover expenses if you lose your job or experience a financial emergency.

Maintaining a healthy cash reserve in the form of an emergency fund is a crucial practice even in good times. Bolstering your cash reserves in a weak market can help you weather the storm.

Pro tips: There are several bank promotions currently available where you can earn a cash bonus for opening a savings or checking account and meeting certain requirements. Plus, there are a few brokerage accounts offering bonuses for new accounts as well.

7. Bonds

Bonds serve as a safe harbor during bear markets, helping investors earn some return without exposing them to the risks of investing in stocks. If the market starts to falter or you’re worried about poor stock performance, moving some of your cash into bonds can help you reduce volatility in your portfolio.

8. Mutual Funds

Mutual funds can hold shares in hundreds of different companies spread across the entire stock market or can focus on specific sectors of the economy. They can also hold other securities like bonds or even cash.

In a declining market, diversification is essential to reducing your risk. Mutual funds make it easy to diversify while only buying shares in a single security.

You can select a mutual fund based on your desired asset allocation and risk tolerance. You can buy a fund that holds only bonds if you want to play it safe, or you can put money in a stock-based fund if you don’t mind the risk and want to ride the market back up. If you’d prefer to take a more hands-off approach, you can invest in funds through a robo-advisor like Betterment.

9. Stocks

A dropping stock market offers excellent buying opportunities for people who like investing in stocks. For stock investors, a bear market is like a sale at their favorite store. It allows you to buy shares at a significantly lower price than usual.

Picking individual stocks can be difficult at the best of times, so some investors decide to focus on well-established companies or blue-chip stocks. If you have the funds and stability in your income, buying shares in companies, even if you see some short-term losses, can help you build long-term wealth.

Final Word

A volatile or falling market can make investing scary, but there’s no better time to be working to improve your financial situation. Invest in yourself or in a business to enhance your economic prospects as the market improves. If you have the resources, buying real estate or stocks at a lower price than usual can help you build a successful portfolio than can gain value as the market recovers.

As Warren Buffet famously said, “Be fearful when others are greedy and greedy when others are fearful.” Take this opportunity when other people are scared of falling markets to find investment opportunities, and it will pay off in the long run.

Have you tried investing during a bear market? What investments paid off?

TJ Porter
TJ is a Boston-based writer who focuses on credit cards, credit, and bank accounts. When he's not writing about all things personal finance, he enjoys cooking, esports, soccer, hockey, and games of the video and board varieties.

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