In part 1 of this series, I gave an overview of investing in a declining market. I said that there were two angles to approach this market; an aggressive capitol accumulation angle, or a conservative capitol preservation angle.

In part 2, I went into the details of the aggressive capitol  accumulation angle.

In this third installment, I'm going to talk about…

The capitol preservation method
If you found the investing style in part 2 to be too aggressive, and maybe even down-right scary… This method may be more to your liking. The goal of this method of investing is, first and foremost, to keep from losing the money you already have in your account… and then possibly make a little more.

This method differs from the accumulation method in what stocks that you pick. You have to be extremely selective in your stock picks, and you should only consider stocks in certain sectors (which I’ll explain later).

Even though the stock picking is different, the way that you buy the stocks are identical to the previous, more aggressive method. You still want to buy your stocks in small increments on the corrections (drop in price). You only want to buy a stock that is rising in price if it is in the middle of a nice run with no indication of slowing… which isn’t typical in a recession.

Ok, so what are these safe sectors to buy during a recession?

• Gold stocks

  Your surest bet during a recession, is to buy a “best of the best” gold stock. When the dollar gets weak, gold gets strong. You apply the same principals of fundamental analysis that I covered in part 2 when you are picking your stocks here. You want companies with low debt, a history of steady growth, a history of strong earnings, and a low P/E ratio. The same stuff I went over in part 2, only with safer stocks.

• Utilities

  People don’t stop turning on their lights, taking showers or heating/cooling their homes in a recession. Therefore, pick a strong utility stock to invest in.

• (some) Consumer goods

  Just like utilities, people still have to buy the necessities (soap, toothpaste, toilet paper, food, beverage, tobacco, etc.), even in a recession. There is an adage that goes along with this that says, “If you can eat it, drink it or smoke it, then it’s a safe stock in a recession.” Studies have shown that drinking and smoking actually increase during a recession… for obvious reasons. So investigate the good consumer goods stocks, and buy the best one.

• Pharmaceuticals

  You probably guessed it… people need their prescriptions, even in a recession. Diabetes, heart disease, allergies… all these conditions require medication, whether we are in a recession or not. Use the fundamentals, pick the “best of the best”

• Healthcare

  If you catch an illness, you go to the doctor. If you break your arm, you go to the hospital. Being in a recession doesn’t keep people from doing these things. These are unavoidable, and healthcare stocks remain steady in a recession.

  Sectors to avoid in a recession
  Stocks in any of these sectors are high-risk during a bad economy. Using this conservative method of investing, you should stay away from these:

• Financial: banks, lenders, etc.
• Manufacturing: cars, boats furniture, etc.
• Anything luxury: travel, recreational vehicles, dining out, etc.

  Before I bring this series to a close, I just want to reiterate that you don’t need to panic if you are holding stocks in a recession. Remember, no matter how bad things look right now, they will get better. You could be holding good stocks right now that are 20, 40, 60% or more down from where you bought them. Don’t get scared and pull all your money out of the market. If the stocks that you have are truly good stocks by their fundamentals, they will more than likely be back up to where you bought them, and possibly higher, within a couple of years… quite possibly even 12 months from now. So hang in there.

  Part 1 of this series

  Part 2 of this series

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