The cost of living has dramatically increased within the last couple of months, with energy bills and food prices having a direct impact on inflation, which is currently expected to reach 10% by the end of the year. This has caused people to cut down their costs of living by spending less on fuel and groceries in hopes of lowering their overall household budgets.
This has led to investors questioning whether right now is the time to invest in property or other alternative investments.
Alternative Investments
Alternative investments such as stocks are known to reduce in value during recessions due to the nature of their liquidity. Since stocks are driven by external forces which investors are unable to control, it is wise to constantly research economic events such as recessions and properly weigh up whether now is the right time to pull out your profit.
However, with this, investors should understand that by the time they realise a recession has occurred, they may have lost value and started to gain it back again.
AJ Bell director Russ Mould has commented, "By the time government number crunchers have declared a recession, the markets will be pricing in the upturn," and continued on to suggest, "It may be right to say stocks don’t get crushed in recessions. But only because they have been crushed already on the way in. Stocks will then move higher before the economic data improved and shows we are out of a recession."
In this case, it is recommended that investors keep constant watch over their liquid assets and constantly reassess their position in the market.
Property
Opposite to these liquid assets is the illiquid property market. During a recession, house prices do not inherently decline. Actually, a benefit of recession may be that the loosened economy leads to lower mortgage rates. This can provide great opportunities for those wanting to diversify their portfolio by investing when the entry cost is low.
Also, investors looking to make passive income may not feel a shift at all. Renting property means you choose the rates, and since there is a demand for affordable property, investors are likely to continue earning their passive income.
Ultimately, the property market is controlled by the investor, so losing money does not necessarily need to come into effect. What a recession may mean overall, is an opportunity to invest in a more diverse, strengthened portfolio that will bolster your income down the line.
It is important to understand that with any investment, proper research should be carried out in order to guarantee profit. However, with the current trends, it is likely to see more stability within property than with liquid asset alternatives.
