An Ignoble Experiment: Recessions - What to look for and what to avoid

Dear Investor,

As we move into the holiday season, the markets continue to show both signs of growth and economic decline. Depending on the articles and research you've done, and with the signs of distress appearing through the real estate market, the timing of a recession appears near. In this email we'll explore how to look at investing in a recessionary period, what to look for and what to avoid, and what you can do to exit a recession in a solid financial position.

By way of disclosure, we have an advertising relationship with Mortar Group, meaning we get paid for making this introduction and sharing this content. As always with these types of deals, consider this an introduction and not a recommendation. Every deal is unique and the responsibility to vet any and every deal you invest in still lies with you. You must be an accredited investors to invest.

Investing in a Recession

By definition, a recession is technically any period in which the national gross domestic product (GDP) growth rate is negative for two consecutive quarters or more. In more basic terms, it's a period usually of higher unemployment, declines in small business growth, the stock market, and the real estate market.

You can't avoid recessions. Recessions inevitably happen and they can hit the real estate market hard - asset values decline, credit markets freeze, and some investors become frozen with fear. On the flip side - savvy investors, or those who have seen recessions before - become more active and continue investing to take advantage of attractive entry opportunities.

Portfolio protection

There are many ways to protect your portfolio. Each recession is different, and investors will use several methods to protect their assets of which some techniques are mentioned below:

Increase Liquidity

Many experts will advise investors to increase cash positions. But, one should not mistake this with selling all of your current positions or investments and just holding onto cash. Remember, recessions typically last less than a year before giving way to the early cycle when markets have historically delivered some of their biggest gains. To take advantage of those gains, it is necessary to be in the market. A more prudent strategy than selling everything could be to shift a portion of your portfolio into investments that are well-positioned to weather a recession. This portion could even be stored in highly liquid securities such as a money market fund or a high yield savings account, especially with current rates.

Analyze your debt

As a potential recession looms, it is very important to manage your debt carefully and evaluate your budget. If you are financially secure and have emergency savings, you should be in a good position, but it is always a good practice to make sure everything is in order.

Make sound investing decisions

When recessions strike, it is best to focus on the long-term horizon and manage your exposure by limiting risk. It is important to have an investing plan and to stick with it. When investment values are lower than they were previously, it can be seen as a loss or as an opportunity. Those who chase opportunities and continue to invest will end up ahead when the market comes back.

Real estate can be an attractive investment during a recession. This is in line with a long-term horizon approach taking advantage of better pricing opportunities in a recession vs. strong economic times. It has a low correlation to stocks and people still need housing.

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Conclusion

It is important to remember that a recession is part of a cycle. We all have to go through it. Even if a recession is on the horizon, we do not know how long it will last. The best strategy is to keep doing what you're doing and always keep a long-term view. Do not pay attention to the short-term noise. Recessions do not mean that you should pull out of all your investments. Stay diversified and hold the course. A decline in the markets means opportunities for investors to buy valuable long-term investments at discounted prices.

This content has been shared by Mortar Group. If you're interested in discussing this topic more, or you are interested learning more about Mortar Group, you can schedule a call here: Schedule a Call

Also feel free to view other recent resources from Mortar Group.

Mortar believes in experience and smarter real estate investing. Their fully integrated in-house design, development, and asset management expertise has resulted in dozens of successful privately syndicated deals. This, combined with skin-in-the-game co-investments and in-depth local neighborhood knowledge, helps Mortar mitigate risk and maximize investor returns. Focused opportunities combined with an intimate knowledge of New York's prime niche neighborhoods allows investors to diversify and deploy capital conservatively in projects and divest risk throughout the real estate lifecycle.

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