How to Invest During a Recession

An earlier version of the article appeared on The Smart Investor website.

“Many major economies to enter recession in next 12 months”.

Now, we know you likely didn’t need an article to tell us we’re in a bear market.

But we’ve seen this happen countless times before. We know that despite an economic recession, despite a bear market, it is still possible to make money.

There’s always light at the end of the tunnel. Take the 1990 recession as an example. If you had invested $10,000 in the S&P 500 index fund at the lowest point during that time, you would have more than $150,000 today.

Recessions are, in fact, a signal for us to act. That’s when bargains start to appear and we can scoop up shares on the cheap. Now’s the perfect time to buy more strong, well-run companies at attractive valuations.

What dividend stocks to buy during a recession?

There is science involved when choosing dividend stocks we predict will soar after a downturn.

If you’re a dividend investor looking for REITS, find those with favourable qualities:

A strong sponsor, good track record of increasing distributions, and with quality assets that can withstand downturns.

Take Frasers Centrepoint Trust (SGX: J69U) as an example.

Frasers Centrepoint Trust, or FCT, is a pure-play Singapore suburban retail REIT with nine retail malls in its portfolio.

Assets under management (AUM) stood at S$6.1 billion as of 31 March 2022 with around 2.3 million square feet of net lettable area.

54.5% of the REIT’s gross rental income is anchored by essential services that will not be adversely impacted by a recession.

The occupancy rate stood at 97.8% and the malls are also well-connected to public transport.

FCT also has a strong sponsor in Frasers Property Limited (SGX: TQ5) that can provide financial support during tough times if need be.

Tenant sales did even better, coming in at 12% above pre-pandemic levels, signalling that people are spending more despite fewer visits to the malls.

Distribution per unit (DPU) has also steadily risen through the years except for fiscal 2020 (FY2020) (ended 30 September 2020) due to the effects of the pandemic.

But we can already hear some objections…

“What if the market continues to perform poorly? Will I lose more money?”

That’s when the art of investing comes into play.

During recessions, it’s easy for many investors to reach an “uncle” point. No, that has nothing to do with your age.

An uncle point is the moment at which an investor gives up. When he or she can’t take the losses, they rather sell than ride out the downturn.

And as we pointed out at the beginning, that could mean giving up 3 to 5 times the potential returns.

But with the right mindset and approach, your “uncle” point might not even exist.

It’s all about fitting your portfolio with the right stocks, with the right allocations, and less about predicting the market.

Follow us on Facebook and Telegram for the latest investing news and analyses!