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Defensive Stocks
Defensive
stocks are those companies which tend to perform well regardless
of whether the economy is good or not. These are consumer
staples companies – providing products that consumers need
regardless of the economic situation. Food and utility stocks
are perfect examples, as consumers will still need to eat and
warm their houses regardless of what the overall economy does.
Precious Metals
When the
stock markets falls, investors tend to flee to the safety of
precious metals. Already gold prices have topped $900 and most
expect it to top $1,000 before the year is over. It’s possible
to capitalize on these rising prices by either investing in
individual mining stocks or precious metal funds.
Value
Investing
It’s easy
to get depressed when you see the stock market dropping and all
you hear is gloomy news about the economy, but maybe you are
taking the wrong point of view. When people go to the mall and
find a spectacular sale – they are generally quite excited. The
same can be true in this current market. Lots of good quality
companies suddenly find their values greatly depressed by the
current economic misery. Buying these companies can end up
being the smartest investment decision you make. For example,
after the dot-com bubble burst, Corning (GLW) saw its stock
price drop to under $2 per share in late 2002. However, just
four years later the stock price was back over $20. Individuals
who were able to invest in a pessimistic marketplace ended up
with phenomenal returns. Those types of returns are only made
possible by the excessive negativism that prevails during a bear
market.
Finally,
it’s important to remember is that even the worst economic
recessions don’t last forever. The U.S. economy is extremely
resilient. Over the last 63 years, there have been 10
recessions. The average length of these downturns has only been
about 10 months. In fact, there have only been 2 recessions in
the last 25 years (early 1990’s and 2000-2001) and both have
been relatively brief.
So while
the economy will certainly recover from its current recessionary
woes, the prudent man still should foresee the evil that could
come over the next few months or even years. Unemployment
always rises in periods of economic recession. So now would be
a good time to make sure you have an adequate Emergency Fund in
case the worse should happen. It is recommended to have at
least enough money set aside to cover 3-6 months worth of living
expenses. This money should be kept in a safe and highly liquid
savings or money-market account.
It is also
a great time to focus on any outstanding debt that you do have.
Recent Fed rate cuts have lowered mortgage rates to their lowest
level in years. So it may be wise to consider refinancing your
home if you have a higher interest rate. Also, any credit card
debt you have should be attacked immediately. Living a
financially-responsible lifestyle will enable you to weather any
type of economic conditions.
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