Undertake Investments During Recession - Essay Example

Undertake Investments During RecessionRecession refers to a period of low economic activity or a general slowdown in economic activity. The National Bureau of Economic Research (NBER) coined the above definition. In addition, recession describes the decline in the economy and that lasts for several months. Negative economic growth can act as an indicator for a recession within a period of two or more consecutive quarters. The U.S experienced recession during the 2008-09 global economic crises that occurred as a result of risky investment strategies. The U.S suffered a major setback and had to develop numerous economic policies so as to evade similar financial problems in the future.

Opportunities arise during periods of recession. Many countries experience what is known as ‘liquidity trap’ that develops due to low-interest rates. In reality, near-zero interest rates do not stimulate the economy. At low or near-zero interest rates, firms and consumers should borrow and spend. However, many firms, groups and individuals focus on either saving or paying debts rather than spending during recession periods. For this reason, near-zero interest rates have less effect on investment and consumption behavior (Bivens 1).

As a result, the client should invest during the recession due to the availability of many investment opportunities.Buying assets during recessionary period reduces one’s spending. A potential investor should invest during the recession. The government and individuals sell assets in the recessionary period. For instance, stock prices reduce significantly. Additionally, bonds, real estates, and mutual funds become readily available. Individuals also sell their private businesses at lower prices.

For this reason, due to the unfavorable economic environment, investors dump their assets and one can decide to pick them at lower prices. However, investing during the recession requires courage and paying attention to market performance (Bivens 1). The investor should wade through the market by undertaking the mandatory dollar cost averaging plan. The plan ensures that the investor does not spend or pour all capital at once. During recession, many people lose hope and faith in their government practices.

Millions of workers lose jobs while the media spread inaccurate information regarding economic recovery issues. It is paramount for an investor to consider financial education so as to understand the performance of financial markets. Developing and marketing personal brands is another critical area that needs consideration. Taking advantage of a recession to invest does not imply that success can be achieved. The investor must make the right decisions while considering the product, price, place, and promotion.

For instance, the investor should undertake intensive product promotion during the recession. Creating awareness enhances increased sales as the economy recovers (Bivens 1). Developing a financial plan helps the investor to make the right decisions. One should spend money on assets that can create high profits in the long-run. It should be noted that recessions do not last long. For this reason, a potential investor should consider investing or taking up businesses owned by competitors as they pull out of business.

In addition, a potential investor should protect his/her cash and avoid stretching further than one can responsibly expand. Managing a business during the recession can be hectic especially if one retains all employees. Businesses hardly sell anything during the recession. It takes courage and patience to invest during the period. However, such courageous undertakings do not disappoint as the economy recovers. Many retail fortunes around the world were made by investors who expanded their businesses during recessions.

Risk aversion approaches best describes what the client needs to consider while undertaking investments during the recessionary period.Works CitedBivens, Josh. (December 2014). Why It’s Too Soon for the Fed to Raise Rates. Retrieved from http://blogs.wsj.com/washwire/2014/12/16/why-its-too-soon-for-the-fed-to-raise- rates/?KEYWORDS=the+great+recession