An economic recovery is a actually a good time to invest. When the economy is booming, companies make more money ,making investments in their stocks more valuable and investments in their bonds more secure. But in all kind of market situations, there are investments that perform better than others during an economic recovery. Ideal suggestion would be to Sit down with your financial advisor and see which of these economic recovery plays fits in best with your investment objectives and risk tolerance.
S&P 500 Index
The S&P 500 index tracks the performance of the largest companies in American stock market, so it only looks logical that when the economy is booming, many of the S&P 500 companies will also see rising profits and stock prices. The S&P 500 index is also one of the easiest investments to buy. One can buy a no-load mutual fund or no-commission exchange-traded fund to get access to all such companies in S&P 500 Index with a single purchase.
Information Technology Stocks
Information technology is one of the biggest drivers of a thriving economy like USA. When companies grow, they need to expand their communications and technological capabilities, and info tech stocks are the prime beneficiaries. Companies that fall into this category include those making computer chips, servers and workplace management systems. Consumer technology companies also gain during an economic recovery as consumer spending also picks up.
Chemical and Materials Stocks
Cyclical stocks like cements ,chemicals and other mateiral stock are those that are very sensitive to the ups and downs of the economy.They can be acutally good purchases at the start of a new economic cycle. Companies who produce chemicals and materials like steel tend to boom during an economic recovery, as demand for their products from consumers and businesses goes up substantially high . Since the stock market normally takes around six months to determine its valuation, it can pay to move into cyclical stocks right before the economy turns hot.
Fed helps kick-start economic growth by keeping interest rates low until business conditions improve. As the economic cycle evolves, interest rates tend to climb higher. This makes long-term bonds a bad place to be during an economic recovery, as rising interest rates drive down bond prices. However, if you invest in short-term bonds, as they mature you can reinvest the proceeds into higher market rates. You can repeat this process until interest rates peak, at which point you’d be better served by locking in those higher rates with longer-term bonds.
With economy recovering , it meansmore goods and services are being produced. However, unless they go to market, products can’t generate any sales. Without trucks, rail cars, cargo planes and other forms of transport, the economy will stop dead in its tracks. Since the services of transportation companies are an absolute essential requirement to a growing economy, their stocks are typically good buys at the start of a recovery.
If you want to get in early on an investment that may turn higher, take a look at international stock markets when the American economy begins to recover. Typically, U.S. leads the world to recovery from global recessions, so as the American economy is returning back to old days, the world will also follow. You will have to do some research in this area, as not all foreign economies will bounce back at the same speed, or may not bounce at all. But buying international stocks when foreign economies are still at the fag end of their recessions can be a great way to get ahead of their eventual recoveries.
Real estate prices can take a hit during an economic recession, but when the economy recovers, housing prices typically jump as well. As the unemployment rate falls and consumer confidence rises, demand for houses tends to go up, driving up prices. Buying a house as an investment to benefit from an economic recovery doesn’t make sense for everyone, as housing is illiquid. However, you can buy real estate investment trusts on the stock exchange to benefit from recovering real estate prices — just be sure you know what your particular REIT owns. The start of an economic recovery can also be a good time to buy a house for your own personal use if you happen to be in the market.
Travel and Leisure Stocks
Travel and leisure companies perofrm poorly during economic recessions, as consumers tend to reduce their adiditional spending during uncertain times. However, when the economy is on recovery , pent-up demand often drives vacation spending. This can result in big gains for hotel and cruise line stocks, for example, in addition to online travel agencies. Airline stocks also tend to rise during economic expansions, as both consumer and business travel picks up.
When the economy is booming, employers need additional workers. Wages also rise during economic recoveries . If you want to position yourself for financial success in this type of environment, it will pay to invest in yourself by enriching your resume, taking additional classes or training or doing whatever required to make yourself attractive to high-paying employers. As your future earning potential is your greatest asset, taking the time to invest in yourself can pay off in the long run even more than buying stocks or bonds.
High-Yield Corporate Bonds
High-yield bonds popularly known as junk bonds, are issued by companies with below-average credit ratings. In exchange for the greater risk to investors, high-yield bonds pay above-average market yields. While normally a risky investment, high-yield bonds can be good to buy at the start of an economic recovery, as rising income reduce the risk the companies will default on their bonds. The combination of reduced risk and high yields can make these types of bonds a good play for risk-tolerant investors during an economic recovery.