Where to invest $500 (or less) now as the recession approaches
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It is not easy to be an investor in 2022. Many investors have lost a large amount in the midst of a bad bear market that may last for a few more months. If you have been on the cycle for the first eight months or so of the year, I urge you to keep staying, as the majority of the pain may already be dealt with. In fact, there may be a lot of panic in the markets before more rate hikes and that’s what scares off a recession in 2023.
Now, it can be hard to avoid a recession. The latest Canadian GDP came in at just 0.1% for the month of June. That’s very little growth that could push into the negatives by the end of the year. But, believe it or not, buying (not selling) in the midst of a recession can be a good idea. Think back to our last recession. If you stay the course and keep buying through the 2008 recession, you’ll get great prices and a front-row seat in the face-melting 2009 market rebound that came and went in a hurry.
Recession may be inevitable. But rallies tend to strike before the recessions end.
Few people remember how surprising the market rush in 2009 was. If you panicked from selling after the market fell, you likely lost the gains and had to buy back at higher prices. Now, it’s easy to look at the old charts and tell yourself that you should have bought from that bottom. However, in the midst of this moment, no one knew when the recession would end. The 2008 recession extended into June 2009, before the market bottomed and started to rally.
If we do indeed enter a recession, a sustained rally could be closer to a massive decline. Anyway, I’m a risk/reward fan, especially when considering that central banks can easily roll back their increases in the fight against inflation.
Don’t rely on the Federal Reserve talking about interest rate cuts here. They are in a data-driven position and probably won’t care to speculate about where they think the data is headed. In any case, I would urge investors to consider that things may not actually be as ugly as they seem right now.
Warren Buffett has been a busy buyer this year. He lost a great deal of money. I suspect he will continue to buy on his way down, because he sees the risk/reward attractive on some securities. He does not know when the recession will end. But he knows that big indulgences often translate into getting more for less.
How do I invest 500 dollars
For $500, Canadian investors should consider an exchange-traded fund (ETF), rather than looking for individual names. This way, you will get instant diversification and will not indulge you in commissions. The BMO Nasdaq 100 Equity Hedging CAD ETF (TSX:ZQQ) looks like a great bet right now after a brutal tech sell-off, which could lift markets from rock bottom once the time comes. Similar to previous recessions, I believe the market rally will start long before the recession is officially over. Moreover, the indicators that are most vulnerable to defeat can have the most room for rebound.
ZQQ is currently down 27% from its highest level. That’s a big discount for Canadians to get a precautionary front row seat to America’s top tech giants. It is mature and incredibly profitable, and it can go out of the gate once the bear has passed and the market is ready to go up again.
Bear markets and recessions don’t last forever. Bulls do not need stimuli to reveal themselves. Sometimes the market is so oversold that it is absurd. After the last pullback in August, I think being a buyer is smarter than being a seller, even as we enter a period of seasonal weakness.