How do I Make Money Investing in Stocks During Recession?

A recession is a good time to invest in stocks for the long term because shares of quality companies have often declined to reasonable valuations.

Most investors have heard the maxim: "Buy low and sell high." An economic recession affords the opportunity to accomplish the first part of that saying. Prices of quality companies have been beaten down by economic conditions and fearful investors fleeing equities for investments that are perceived to have less risk. Buying at low levels, such as during the first half of 2009, gives long-term investors the chance to profit as stocks eventually rise in anticipation of economic growth resuming. The resulting "bull market" will afford the savvy and bold investor who bought low the opportunity to "sell high" and reap profits.

Instructions

1. Choose quality companies whose shares have been beaten down. Look for strong balance sheets (low debt-to-equity ratio) and a track record of profitable yearly performance. Consider enterprises that have stood the test of time, and are likely to continue their long-running pattern of growth. For example, there are certain companies that do well in America and abroad because they have a proven business model that has done well for years, such as McDonald's or Wal-Mart Stores or Procter & Gamble Inc. Buy the stock at a price that is well below the highest price it has reached in the previous 12 months and be ready to hold the investment for months or even years. Stock prices tend to rise in anticipation of a recession's end.

2. Invest in increments over time. In any market, bull or bear, there is the risk that a stock's price may fall immediately after you make a purchase. However, if you spread your purchases out, and invest in one stock per month or buy equal amounts of the same equity at regular intervals, you will be able to minimize your risk.

3. Invest in companies that provide goods and services that you know are in demand from your experiences. If you see crowds lining up to purchase an item from a particular company, it is a good bet that there is a high-demand for that particular product and the stock of its manufacturer may perform well. Be aware when companies are releasing new products, and anticipate the popularity by buying in advance of the item going on the market. The stock market is forward-looking; stock prices anticipate what is likely to happen in the next six to 12 months and not in the past.

Tips & Warnings

• Avoid the latest fads. When the mainstream media is covering a company's latest technology or gadget release, the appreciation of the company's stock probably already has occurred.

• Investing in any stock involves risk. Unexpected events, such as war or a plane crash that kills key executives, can cause the shares of even the best companies to fall temporarily.

References

• Recession-Proof Ways to Make Money
• How to Invest During a Recession