If you are close to retirement age or have already retired, reacting to economic recovery by withdrawing all of your money from secure investments and trying for higher returns in an unstructured manner is not a good strategy. Of course, you would want to recover the losses that you made during recession, but it is better to proceed cautiously as the economy is still not completely stable. Here are some tips to recover your losses without taking a lot of risk.
Investment in stocks
During the economic recession, stocks prices saw massive declines and they continue to be lower than where they were in early 2008. However, companies are slowly making more revenue as the economy is recovering and consumer spending is going up. Many companies had cut down on their production volumes and reduced their costs during recession, seeking higher productivity. Due to some of these changes, several industries are likely to do well and stocks will give you good returns.
My advice is that you should invest a small part of your money in stocks so that you can recover some of the losses. Make a long term investment in stocks of bigger companies with a good track record. These companies recover much faster than smaller ones and when the economy improves further, they will be in a better position to post impressive profits.
Although you should invest some money in the stock market, you should not lose sight of the fact that the market will be bearish at times. But just because you are stuck in a bear market, you should not sell all your stocks. It is better to sell the stocks when the market recovers. People who sold during the 2008 crash were the ones who lost the most. Those who stuck with their investments would have recouped a large part of their investments.
You should also have some international investments as the stocks of companies from emerging economies have been outperforming the stocks of domestic companies. You’ll get better returns by looking beyond the US.
Fixed income investment
The best way to minimize risk is creating a diversified portfolio. Along with stocks, one of the options that you can consider is a fixed income investment. The prices of corporate bonds have fallen because of lesser demand since the recession, and they present a good opportunity. If you pay a lot of tax, then you can consider municipal bonds to save tax and earn interest at the same time.