Investing through recessions is nerve-wracking. Here are seven quick tips on keeping sane and solvent.
- Write down your strategy: Take 10 minutes to write down your investing strategy and why you hold each of your stocks, bonds, CDs, and mutual funds. Use that document as your pillar of strength if markets go bonkers.
- Diversify: There's a reason financial advisors pound the table on diversification: It works. Lower your downside and sleep easier by investing across a range of asset classes, styles (value, growth, etc.), industries (consumer staples, energy, etc.) and countries (U.S., Freedonia, etc.). If you're new to stocks, here's a quick primer on how to get diversified.
- Don't invest what you can't afford to lose: Money that you're planning on spending (everyday expenses, a house down payment, etc.) within the next three years shouldn't be in the stock market. Period.
- Avoid leverage: Don't buy stocks on margin, and avoid companies with high debt loads. Debt-laden companies' profits and stocks are among the hardest hit during recessions.
- Buy quality: Swap shares of expensive, no-moat businesses -- I'm looking at you, Zillow (Nasdaq: Z) -- for consistent cash generators with proven track records. Look for wide moats, high margins, and a history of dividend increases as signs of quality.
- Go global: The U.S. isn't the only investing sandbox to play in. Get easy exposure to global markets by investing in high-quality, U.S.-based businesses that do big business abroad. Coca-Cola (NYSE: KO), Wal-Mart (NYSE: WMT), and Visa (NYSE: V) are good jumping-off points.
- Stay invested: This might sound counterintuitive, but you shouldn't lose sight of the fact that the stock market is the most powerful compounding machine at your disposal. Leave the market timing to the so-called professionals and stay invested for the long haul.
