When the economy starts to dive and the prices of securities and other assets start to fall, investors need to be proactive in implementing investment strategies in order to insulate themselves from a true bear market. One investment instrument that you should pay special attention to is your 401k. Here are some steps to recession-proof those investments:
- Find safe investment harbors. Those who are prudent in their savings strategies may want to seize this moment to invest in bonds. Federally issued bonds are low-risk, guarantee a rate of return and are considered one of the most simple ways to diversify an investment portfolio. The yield rate for savings bonds is just enough to hedge out the average inflation rate of 3%. What you will be giving up as far as a high yield will be more than made up for with peace of mind.
- Buy more shares. One great thing about the market decline is that some choice stocks are now more affordable to the average investor, and that includes dividend stocks. Dividend stocks are like traditional stocks, but with the added boost of yields that can be physically distributed to investors when they occur. Because the prices of those instruments are fairly low, recessions are a good time invest so when the market does improve, you will be able to get a little more cash on the side.
- Buy inverse ETFs and other commodities. Investors may also be able to recession-proof their 401k plans by investing into funds that actually thrive in bear market conditions. Some of the funds are compromised of gold (which tends to increase in value as the dollar declines) and derivatives to short the S&P 500 Index. Strengthen your 401k even further by investing in leveraged inverse funds as they are constructed to profit from a market decline (based on the value of its chosen underlying benchmark).
In hard times, it is important to do something to strengthen your 401k investments, as in the end, your investments are not really meant to manage themselves.
