Investing is a shrewd practice, and one which more and more individuals are engaging with as a form of long-term wealth management. After a decade of low interest rates, and an explosion in availability of consumer-side financial tools such as retail trading apps, consumers are taking investment opportunities into their own hands to maximise the leverage of their savings. But for investors new to the practice, the coming year can seem a difficult prospect. With recession all-but guaranteed, is 2023 the right time to invest?

A Year of Recession

The outlook for 2023 is a grim one, as analysts, economic speculators and even the UK government agree that a period of serious economic downturn is on the horizon. The nation has already experienced a difficult year, as a rising rate of inflation – fuelled by rising energy costs and increased costs relating to the importing of goods – has had a marked impact on the spending power of domestic consumers and even larger-scale businesses.

The continued downward pressure on the average consumer budget has led to decreased consumer spending – one of the leading factors in the development of recessions. Businesses were already struggling with marked increases in operating costs, but now face an extended period of reduced profit potential. Conventionally speaking, this makes for a difficult time for investors. But even in recession, there is opportunity.

Generating Profits from Downturn

Falling profits often herald falling stock values, leading many passive investors to see the value of their portfolio shrink as a result of market-wide downturn. Wealth managers can help their clients navigate through this downturn, though, with clever strategies that maximise short-term profits.

Shorting is a high-risk strategy, but something of an artform perfected by high-value hedge funds and investment institutions. It essentially enables portfolio managers to generate revenue from falling stock values as opposed to rising ones; this is achieved through borrowing shares from another institution at a particular price point, selling said shares then buying them back at a lower value. The difference is kept as profit, and the shares are returned to the initial borrower.

This strategy is a high-risk one in general, but periods of recession reduce the risk inherent to the practice. While not a recommended strategy for newcomers to investment, it can be an effective way to leverage volatile market swings – particularly when it comes to businesses with negative cashflow or high debt load.

Long-Term Investment Strategy

But the majority of investors are not investing for short-term gains. Instead, they will be looking for assurances that the value of their investment is secured for the long term. In this way, recessions are the perfect time to not only hang on to existing stocks and fund positions, but also to make active and ‘safe’ investments for the future.

Stable businesses have little to fear from the recession, as the markets will naturally rebound and stock prices with them. With this in mind, investors can leverage the stability of businesses with high cashflow and low debt burdens, investing at a ‘discount’ and benefitting from medium-term rises in value.