Campbell Harvey, a professor of finance at Duke University, is a scholar who studies models that forecast future economic crises. He is not the kind that stirs up investors’ fear. It is close to a cool researcher. Recent evidence advises that the recession is near.
As an asset manager, I do not want a recession. However, the past 10 years have passed since the last disaster, and it is considered that the crisis is approaching when the signs of unusual economy are full-scale. Assuming that the crisis can not be avoided, what should investors prepare?
First, we need to organize our investment portfolio. We usually do not throwing away of stocks for foolish reasons. This is because the relatives have already recommended it, so they have to recover it. I recommend selling it right now. If the US stock market rises to a record high, it should be sold to minimize losses. Companies that are defenseless to recession must remember that stock prices fall faster. If you have high-risk, high-yield bonds issued by companies with low credit ratings, you should dispose them immediately.
Second, we must clear our debts. Today the unemployment rate is at its lowest in 50 years and wages are rising. The situation that is easy to pay off debt like now does not come for a while. Also, it is a good idea to collect some cash that you can use in an emergency.
Third, we must prepare for the collapse of stocks. The market can go down abnormally in a recession. At this time, you must hold excessively stocks. For example, if the US stock market falls 20-25%, we recommend buying US index funds. If global stock markets drop further, it is good to buy stocks from global index funds and emerging markets. Preparation should be done from now on. The conditions of purchase should be set in advance and cash should be prepared. It may seem like an idiot right now, but after a few years you will feel yourself a genius.
Fourth, credit scores should be checked and improved. A good credit score gives you a chance to borrow money at a lower interest rate. The mortgage loan rate usually falls during recession. If you have a good credit score at this time, you can get a chance to buy a house. Even if you feel you do not need it right now, it is better to manage your credit score in advance.
I honestly hope the recession will not happen. But with so many indicators and research, it seems that the crisis can not be avoided. But even if the crisis does not come, the four methods outlined above will help you become a better investor.