Do you want to catch a falling knife? A smart strategy for buying stocks in a recession.

As stock prices drop, you may feel like you’re on the world’s biggest sales. Suddenly, a stock that was thought to be expensive a few weeks ago is trading at bargain valuations. You may want to jump in and catch that falling knife, hoping you can buy at the best price. Of course, it is almost impossible to spend time on the market, so it is rare to buy stocks at the lowest and sell at the highest.

If you’re a short-term investor, this can be a problem. In this case, it can take some time to recover and acquire, so buying inventory is dangerous when you buy inventory. On the other hand, if you are aiming to sell in days or weeks, you may find yourself logging a loss by catching a knife with a blade.

However, if you are a long-term investor, the photos look very different. You can buy stocks during a recession. Because holding for more than five years gives those companies time to recover and grow, and the stock price has the opportunity to reflect that progress. So let’s take a look at some smart strategies for buying stocks during a recession.

On the one hand, the stock prices of these bargains may have caught your eye, but if the general environment seems uncertain, you may be concerned about investing. What if the current problem continues? What happens if stock drops further? These questions may be running through your mind.

This is a good time to think about what history has to say. My colleague Adam Levy wrote recently As for what commonly happened after a stock fell into correction, this provides a reason to invest with confidence during these periods. S&P 500 index (snpindex: ^gspc) Citing Dow Jones’ market data, he wrote that he had slid into the revised zone 15 times since 2008, and that for all but two of those, the index was high a year later.

This means that the fix offers us a great purchase opportunity. This is something that will generally be available in the not too distant future. It does not matter if you purchase during the correction. Even if the stock continues to decline, stocks can still remain important as they recover and move through a stronger market environment. So the message here is not to hesitate to buy stocks during revisions. History shows that it is a big bet for long-term investors.

Finally, it’s a clever idea to look at it. Buyback activities Recently. For example, last quarter last year, S&P 500 buybacks rose by more than 7% to around $243 billion, suggesting that businesses are confident in their future. So stock buyback growth supports the idea of ​​investing regardless of what the market is doing at the moment.

It is impossible to know when the market will enter the next negative phase, but we know it will happen at some point. The market passes through periods of profit and decline for many other periods, from gatherings to market slump. Some are short and some are long. But the good news is that difficult periods don’t last forever and certain types of stocks can help you survive the storm.

Generally, the type of inventory that supports a portfolio during a recession is value stock. These stocks are established industries such as energy, healthcare and finance, generating substantial amounts of cash and wage dividends. They are strong, stable and reliable, and tend to outperform during tough times. And of course, investors are especially grateful for dividend payments when the market is declining.

MSCI World Value Index It rose 6.1% in 2022, a year of decline in the overall market; MSCI World Growth Index Over 26%, according to a report by Quilter Investors.

All this means that if the market is rallying and growth stocks are surged, you have stocked value stocks that could support your portfolio during the next tough period.

If your investment has a fixed amount, you can expand everything at once or use averaging. So, for example, at Lump-Sum Investing, you might invest $1,000 right now nvidia. Averaging may invest $100 in Nvidia for 10 weeks every Monday.

Which strategy produces the best returns? A study by Vanguard shows that chunksam investment costs an average of 68%. However, the study showed that in the worst market environment, chunk investments can result in significant losses.

So which option should I choose? It depends on your relationship with your risk. If you are a very careful investor, you can try to average out, at least on certain investments, but an aggressive investor may choose to deploy the lump immediately.

However, in either case, investment is a better idea than simply holding cash. A Vanguard study also found that both techniques outweigh cash at least 69% of the time. This means that even in the most challenging environments, if you are willing to hold it for the long term, it is better to invest than leave the market.

Consider this before purchasing stock at the S&P 500 Index.

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Adria Cimino There is no position in any of the stocks mentioned. Motley Fool has a job at Nvidia and recommends. To Motley’s fool Disclosure Policy.

Do you want to catch a falling knife? A smart strategy for buying stocks in a recession. Originally published by The Motley Fool