How investors can prepare for a slow economy


The economy, cost of living pressures, and fear of a recession are again dominating the news.

However, instead of retreating financially during these times, I recommend doing the opposite as it's a perfect time to set yourself up to profit.

According to the ABS, the Australian economy grew by 0.4% in the June quarter and 3.4% from 2022 to 2023.

asx market wrap

These numbers don't spell a recession as Australia's economy has been quite resilient but that doesn't mean we're out of the woods just yet.

While I don't believe Australia will fall into a recession, I also don't expect any major changes in the near future because getting an economy going is like rolling a snowball as it starts small and grows over time.

How can you prepare for a slow economy?

So, how should you prepare to invest in a slow-growth environment?

The first is to take a long-term approach to investing, which means being consistent over the long haul rather than looking for a quick fix.

Remember, financial markets move in cycles and what may seem like a dire situation right now won't last forever. It can also spell opportunity which is my thinking at present.

The second is to take a macro view. Keep an eye on what's happening around the world as our markets are closely correlated to external trade. Any hiccup with our major global partners will directly impact our economy.

The third is to be disciplined, which means removing the emotion from your investment decisions.

When is the best time to invest?

All too often I see people wait for the perfect time to invest only to miss the opportunity.

From experience, I will say that the best time to invest is when everyone is looking the other way, which is why I am getting excited right now.

The fourth is to invest with the mindset of winning rather than the fear of not losing. If you focus on the latter you will either fail to make good decisions to invest or invest in the wrong assets.

For example, when times are uncertain many commentators recommend moving into safe assets such as gold, bonds or cash that offers safety.

While these assets do have a place in your portfolio at the right time, I don't recommend diving into them for the sake of safety. If you spread yourself too thin, your investment returns won't beat inflation.

Lastly, this is the perfect time to educate yourself as you are less tempted to blindly jump into the market. It also provides the time and space to learn what you are doing.

In applying these key steps, two things occur; firstly you will be a far more successful investor and secondly, you will be able to calmly weather any financial storm that may arise.

What are the best and worst-performing sectors this week? 

The best-performing sectors include Energy up more than 2% followed by Materials which is just in the green and Communication Services which is just in the red.

The worst-performing sectors include Information Technology down more than 3% followed by Consumer Discretionary and Industrials which are both down more than 2%.

The best-performing stocks in the ASX top 100 include Whitehaven Coal up more than 11% followed by Northern Star Resources up more than 8% and Resmed up more than 5%.

The worst-performing stocks include AMP down more than 8% followed by Harvey Norman down more than 7% and Pilbara Minerals down more than 6%.

What's next for the Australian stock market? 

While the stock market can be frustrating to deal with at times we can't say that it's ever boring. After finishing the prior week up 1.41% and looking good, you would think more of the same would occur this week.

Well, as we have seen many times in the past three years, the market has a mind of its own and, once again, it has reversed to trade down around 1% so far for this week.

As I mentioned in my last report, I was expecting a slight fall over a couple of days before rising again, which it did on Tuesday and Wednesday.

Then on Thursday, the market lost ground falling 1.28% and was back in the red.

While this is concerning, it does highlight why I continue to say that we need to confirm a low before we buy because blindly jumping into a stock believing it has found support results in situations like we experienced this week.

That said, all is not lost because while it is still possible we may see further falls below the 7,000-point support level, I still believe the move down has finished or is very close to being confirmed but only time will tell.

So, while the market is looking better, we are not out of the woods just yet, which is why patience right now is still the best strategy.

There are many good stocks showing strong signs of a nice bull run, which is why I continue to say that there will be plenty of time to profit when we can confirm the direction of the market.

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Dale Gillham is chief investment analyst at Wealth Within Limited (AFSL 226347). He also serves as the head trainer at the Wealth Within Institute (RTO 21917). He has more than three decades of experience in the investment industry, and is the author of How to Beat the Managed Funds by 20%, Dale's qualifications include an Advanced Diploma and a Diploma of Share Trading and Investment. He co-hosts the Talking Wealth Podcast, and his work has appeared in The Australian Financial Review, New York Business Journal, Wall Street Select and more.
Peter Evans
October 21, 2023 8.44am

Some good timely advice.