The Inevitable Recession: Smart Investing in a Volatile Market

• Author: Jenny Wolff
• Posted: 2024-05-11

 

Investing During a Recession: Investment Trusts and Funds

When the U.S. Treasury's yield curve is inverted, people tend to unload heaps of stocks with a quickness. During an inverted yield curve, short-term interest rates climb higher than long-term interest rates. As a result, short-term Treasuries have higher yields than those of long-term Treasuries with equal credit risk.

Historically, an inverted yield curve precedes a recession. Should you buy or cash out before the market gets worse? Not so fast. There are recession-proof investments you can make that support high-yield diversification and protection against market volatility within your portfolio. Take a look.
 

Real Estate Investment Trusts

Called a REIT, a real estate investment trust is a company that owns and, often, operates real estate and related assets that generate income. High inflation and surging interest rates can diminish the performance of REITs. However, real-world geopolitical dynamics sometimes make REITs strongest at the oddest times.

For example, as the world continues to open up and international travel returns to normal, hospitality REITs continue to produce high yields. Hospitality occupancy rates surged as borders opened, leaping to 54.5% above last year. Similarly, profits rose an impressive 58% over last year.

As tourism slowly returns, REITs offer a recession-proof way to access a high-yield investment. Other types of REITs might regain strength as the economy improves. This makes REITs an investment worth tracking.
 

The AI Market

The AI market encompasses a huge assortment of industries:

Supply chains
Research
Analysis
Marketing
Product making

Any current and future industries that incorporate AI into their business structures might prove to be lucrative investments. As of this writing, experts forecast the AI market to grow 1,000% by 2030. How do you invest in AI?

Since the market grows as we speak, it's essential to keep your ear to the ground. Take for granted that huge tech companies are already wading into AI technology. Investing in these companies gives you access to potentially lucrative AI investments that remain affordable at the moment.

Microsoft, for example, is attempting to integrate AI into all of its segments of business. They've invested billions into Open AI, creators of ChatGPT. The company hopes to enhance Bing searches with ChatGPT technology, competing with Google.

CrowdStrike, an American cybersecurity technology company, is also pouring money into AI. Cybersecurity companies consistently do well, especially since our evolving personal and work lives rely heavily on cloud storage services, endpoint protection, cloud security and cyber threat/risk management.

With new and existing customers adding more services, the growth of CrowdStrike and of other companies maximizing AI technology continues at a healthy rate. CrowdStrike reports a double in new subscription accounts over the past year.

Hedge Funds, Index Funds and Mutual Funds

The year 2022 marked the first time in roughly 14 years that hedge funds outperformed index funds. This merely reflects the shifting dynamics in an uncertain economic period. Generally, both hedge funds and index funds can do well, but it's important to understand their key differences.

Both hedge funds and index funds are investment products. A brokerage firm, a bank with brokerage services or a financial institution with a brokerage arm presents the product to potential investors. Both products consist of pooled assets.

Hedge funds entail a manager who actively invests in a wide array of opportunities. The goal is to maximize profit and minimize risk. Index funds are more of a passive investment product.

Index funds contain a portfolio of stocks and bonds, tracking an underlying benchmark stock market index, such as the S&p 500 or the NASDAQ 100. Returns correspond directly to the performance of stocks and bonds of companies represented in the fund. Matching market performance is the goal of index funds. Beating the market is the aim of hedge funds.

Depending on your risk-tolerance, either or both types of funds might be a good idea. Mutual funds are another investment strategy. Experts advise the safety and performance of mutual funds over the purchase of individual stocks.

Mutual funds are rather like hedge funds, except hedge funds are private and only accessible to accredited investors. Mutual funds consist of regulated investment products that the public can trade daily. Managers of mutual funds pool money from many investors, using the pooled money to purchase a variety of stocks and bonds.