Going through a recession is not something anyone should want, especially because of the chaos and difficulty to continue to have a well balanced quality of life that this situation creates.
However, BlackRock – the world’s largest asset manager – has come forward with quite a shocking statement. The strategists at BlackRock believe that recession sits much higher on the list of issues that can, in the central banks’ view, bring price levels under control.
In other words, the central banks are deliberately causing recessions by over tightening policy. How can we tell if they are doing this on purpose? Simply by observing how the central banks are rushing to try to tame inflation.
What is different from past similar instances is that if then central banks would seem to play the role of the helper or even saviour, in this case, people cannot rely on them anymore. Central bankers won’t ride to the rescue when growth slows in this new regime, contrary to what investors have come to expect.
Whether or not it is true that this recession is pre-planned by a central authority (or cluster of central authorities), people need to find new ways to hedge against it. The old narrative is no longer viable, therefore it must be dealt with differently. Thus, here are a few assets you should definitely take into consideration:
Real estate
It might seem like a bad idea at first glance. After all, when central banks are raising mortgages and interest rates, as well as landlords raising rent prices and creating a living crisis, how can investing in real estate be a good idea?
According to investment management company Invesco, real estate has proven over time that its main characteristic is resilience in times of rising interest rates. Real estate is also a well known hedge against inflation.
“Between 1978 and 2021 there were 10 distinct years where the Federal Funds rate increased,” Invesco says. “Within these 10 identified years, US private real estate outperformed equities and bonds seven times and US public real estate outperformed six times.”
The turnaround is actually quite smart: as the prices of raw materials and labor work go up, building new properties becomes more expensive. This, in turn, drives up the prices of existing real estate properties, therefore making it a good idea to invest in real estate.
You can always rent the property to gain an additional income, but you can also try a different approach. There are plenty of real estate investment trusts (REITs) as well as crowdfunding platforms that can get you started on becoming a real estate mogul.
Consumer staples
Higher interest rates can cool down the economy when it’s running too hot. But the economy is not running too hot, and BlackRock sees rate hikes pushing the economy into a recession. That’s why investors may want to check out recession-proof sectors – like consumer staples.
What are consumer staples? They are essential items such as food, drinks, household goods or personal hygiene products people need on a daily basis. In other words, they are products that become detrimental for people’s quality of life, no matter the economic climate.
The concept behind this idea is that consumers will always need these things so investing in them will surely help you hedge against inflation. When inflation drives up input costs, consumer staples companies – particularly those with entrenched market positions – are able to pass those higher costs onto consumers.
That being said, even if a recession hits any part of the world, we will still see goods such as PepsiCo products, Tide or Nivea on the market. You can gain access to consumer staples groups through ETFs like the Consumer Staples Select Sector SPDR Fund (XLP) and the Vanguard Consumer Staples ETF (VDC).
Wine
Similar to how consumer staples make up a good asset to help you hedge against inflation, wine should also be on your list as it has been around for literally thousands of years and it surely won’t go away too soon.
While most collect wine for enjoyment rather than investment, bottles of fine wine become rarer and potentially more valuable as time goes by. Since 2005, Sotheby’s Fine Wine Index has gone up 316%. As a real asset, fine wine can also provide the diversification you need to protect your portfolio against the volatile effects of inflation and recession.
A first step in investing in wine is by purchasing a few bottles and storing them properly – preferably in a wine cellar because if not stored at the right temperature or humidity, the bottle could be compromised.
In the past, investing in wine used to be reserved for the ultra rich, but with new platforms emerging nowadays it can also be a good opportunity for people who are not ultra rich.
All in all, to prevent being affected by recession you need to take a few good precautions, especially now as we are not 100% sure when it can happen, having central banks be involved in it or not. Prevention is always the go to move.
