We all tend to get a little antsy when a recession looks imminent. That’s completely understandable, because you’ve put your hard-earned money into investments that are now just not performing as you hoped.
We hope that our investments will just continue rising with no signs up stopping. But that just isn’t reality. The point is that while there might be dips in the market and dips in your stock, if you’ve chosen solid companies, those stocks should rally and continue rising up and up yet again.
So, with that in mind, there are a few things I would avoid worrying about when it comes to your investments — especially ahead of a recession.
Don’t cash out It might seem like a safer bet to take out all your money ahead of a recession. After all, look what happened during the Great Depression. But the recession coming up is not anywhere near that serious. As stocks trend downwards, it might be tempting to get rid of your stocks and keep your investments safe in a savings account, but I would urge against it.
That’s because of the Tax-Free Savings Account (TFSA). When you cash out, your money is now the potential target of the tax man. It’s no longer safe in a tax-free account, and that leaves all that money open for business. It also means you aren’t going to see any potential gains that would happen down the line and will have to buy back into a stock for potentially greater than you sold for. Finally, if your stock offered dividends, that free cash is no longer coming your way.
The stock market is fickle Stocks could go down and stocks could go up, but just because a stock is rising or falling doesn’t mean it’s set to reverse. There are a lot of analysts out there who fear that stocks that have continued on an upward trend are due for a crash. Take Shopify for example. This stock has bucked trends and continued on its merry way. Meanwhile, other stocks that arguably have a lot more proof of success — take the energy sector — have remained stagnant or dropped even lower.
So, again, anything can happen in the stock market, and it’s all about your research. If you and your financial advisor or banker have chosen stocks that you firmly believe will continue to grow over the long run, then stick it out. Even during a downturn. It’s far better to put on blinders than it is to sell and repurchase.
Ignore the quarterly reports … somewhat Don’t get me wrong, quarterly reports are important. But a lot of investors hang future investments on how a company performs each and every quarter. If a company then misses analyst expectations, shares drop and there’s a mini panic of some kind or another. That’s just not a realistic expectation for companies to reach every quarter every time.
Rather, it’s better to look at the over-arching trend of a company, both in share price and in overall performance. That’s where investors can really see how a company is performing. Take a company such as Fortis (TSX:FTS)(NYSE:FTS) for example. This company is a solid investment before a recession, as it’s a utilities company. That means no matter what, Fortis should continue to do well. But if you focused on each and every quarter, there are a few that would have likely soured you to Fortis. That’s because the company is in growth mode, making acquisitions and growing throughout the United States. Granted, it has a lot of cash on hand, but it’s also spending a lot. Coupled with that is a steady growth in share price, but nothing like you’d see with Shopify.
But again, if you’re looking for solid long-term investments, Fortis is an excellent choice. These types of companies will continue to do well for decades. So, if you’re looking for an investment to have for a decade or so — which you should be — then considering stocks like Fortis, and not worrying about the blips in the market is the best way to move forward.
Fool contributor Amy Legate-Wolfe owns shares of Shopify. Tom Gardner owns shares of Shopify. The Motley Fool owns shares of Shopify and Shopify. Shopify is a recommendation of Stock Advisor Canada.
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