Beating the recession: Tips and tricks for Gen Z investors

It is important for those of the Zoomer generation, the to be Gen Z investors, to be aware that both the winter season and an economic downturn are approaching. As we prepare for the cold weather, there are also indications that 2023 will bring financial challenges, including a continued recession in the West, a resurgence of COVID-19, and rising expenses.

According to a survey by Bank of America, a significant majority of 77% of fund managers are anticipating a worldwide recession in the coming year, the highest prediction since the outbreak of COVID-19 in 2020.

Volatility and market fluctuations relationship

Volatility and market fluctuations are normal parts of investing. Even though some investors may have never experienced a bear market before, it’s important to remember that these downturns are a part of the market cycle. Instead of getting overly concerned about short-term market fluctuations, it’s important to focus on the long-term potential for growth. It’s important to remember that markets can be volatile, but over the long run, they tend to go up.

Possible market outcomes

The markets do not owe you any particular outcome, and it’s essential to have realistic expectations when it comes to investing. Having the right mindset and a steady temperament can help you make better investment decisions. This is a key factor that sets successful investors apart from those who struggle in the market.

Experiencing market fluctuations

It’s important to remember that experiencing market fluctuations in real life is vastly different than simply reading about them. The author of the book “The Psychology of Money” Morgan Housel, explains this concept well. He emphasizes the fact that reading about market volatility is one thing, but actually living through it, is a completely different experience.

Approach for handling the situation

In order to make the most of a downturn in the market, it’s important to not panic and sell your investments. Instead, consider buying more and averaging down the cost of your units. For example, if you invest in a mutual fund that costs 100 per unit and you invest 1,000, you will be able to buy ten units.

However, if the market falls and the units are available at 80, you would be able to buy more units (12.5). It’s important to note that this strategy should only be followed if you have confidence in your investment.

Emergency fund’s role

It’s important to have an emergency fund in place in case of unexpected financial difficulties. This way, you don’t have to rely on others for help and can take care of yourself. This is a form of self-reliance. It’s recommended to keep 6 to 9 months of expenses in a separate account that is not connected to internet banking or card transactions. This way you can access the money easily when you need it.

Plan for near terms goals

It’s important to keep your money for near-term goals in liquid form so that you can access it easily and quickly. If you have a goal you expect to achieve within the next three years, it’s best to avoid investing in pure equity or equity mutual funds. Instead, consider investing in debt funds such as liquid funds or short-duration funds. These options offer stability and consistent returns and are also tax-efficient.

Prevention from clutter

It’s important not to fall prey to doomsday theories when markets are down. It can be difficult to maintain conviction when markets are performing poorly. The constant flow of news, views, and opinions can clutter your mind, especially when the markets are in a downturn.

It’s essential to avoid getting caught up in these theories and instead focus on your long-term strategy. Although it may be challenging, it’s important to take a step back and consider the broader perspective.

Borrow to invest trap

Avoid borrowing money to invest or trade. Futures and options trading can be tempting because you only need to pay a small portion of the cost to potentially earn large returns, but the downside can be significant. If your investment doesn’t perform well, your losses will also be proportionally larger.

You may be surprised by how many people have had negative experiences with futures and options. It’s important to be aware of the risks associated with borrowing money to invest or trade.

Reckless over experiments

It’s important not to be reckless when experimenting with investments. You should be mindful of how much money you are willing to risk. That being said, it’s also important not to be too conservative and miss out on potential opportunities.

One way to balance this is to set aside a certain amount of money, ideally 5-15% of your portfolio, that you can use for more speculative investments. This way, you can explore different options while still protecting the majority of your savings. Keep in mind that this money is considered as “fun money” and you should mentally prepare yourself to possibly lose it.

As we prepare for the challenges that the coming winter may bring, it’s important not to lose sight of our long-term goals. A common saying, “What I don’t know can’t hurt me,” is not accurate.

It’s important to educate ourselves and be aware of potential risks in order to make informed decisions. A quote from Game of Thrones that might be useful to keep in mind is “What we don’t know is usually what gets us killed.” It’s important to be prepared and be aware of potential risks in order to make informed decisions.