All about investment

By James McKerr

With most Western economies facing economic downturns, if not all out recession it is becoming increasingly hard for investors to find good investments that provide solid returns.

The recent global credit crisis has made it much more expensive for companies to borrow money to fund their activities. Virtually every listed company uses some for of debt to finance part of their trading activities meaning that there are virtually no companies out there that have been unaffected by this crisis. This increased cost of borrowing has forced profits much lower and for some highly leveraged companies it has spelled the end, just as it did for Bear Stearns. All of this has meant that stock prices have been falling and with the economic climate set to get worse traditional equity stocks look set to lose investors money.

Diversification is Key

Traditionally in recessions investors were well advised to move funds into what are known as 'staple sectors' such as food industries, the theory being we all need to eat and buy their goods. However the impact of increase borrowing costs as well as rising commodities prices has meant that food prices are getting more expensive and hitting the bottom lines of food industry companies.

In order to better recession proof your investments it is essential to learn to not be afraid of investing in new markets or industries. May investors make the mistake of believing they ca only succeed by sticking to investing in their specialized niche. This works when markets are rising however when they are falling it can be compared to trying to pick good apples out of a rotting basket. Instead look for a new fresh basket in which to invest.