How do You Invest in a Sluggish Economy?

Now the Voice campaign is over, news is reverting back to the economy, cost of living pressures and the fear of a recession. 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 in a sluggish economy.

According to the ABS, the Australian economy grew by 0.4 per cent in the June quarter and 3.4 per cent from 2022 to 2023. I don’t know about you but these numbers don’t spell a recession as Australia’s economy has been quite resilient but that doesn’t mean we are 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. So, how should you prepare to invest in a sluggish economy?

Four strategies for investing in a sluggish economy

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. 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. 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 were the best and worst-performing sectors last week?

The best-performing sectors included Energy up 2.67 per cent followed by Materials down 1.57 per cent and Communication Services down 2.04 per cent. The worst-performing sectors included Information Technology down 5.07 per cent followed by Consumer Discretionary down 3.44 per cent and Healthcare down 3.33 per cent.

The best-performing stocks in the ASX top 100 included Whitehaven Coal up 12.37 per cent followed by Northern Star Resources up 9.77 per cent and Evolution Mining up 7.29 per cent. The worst-performing stocks included Alumina down 13.37 per cent followed by AMP down 10.55 per cent and Harvey Norman down 9.02 per cent.

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 per cent and looking good, you would think more of the same would have occurred last 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 almost what it rose the week prior.

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 of last week. However, it lost ground for the remainder of the week falling 2.42 per cent. 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 last 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.

For now good luck and good trading.

Dale Gillham is the Chief Analyst at Wealth Within and the international bestselling author of How to Beat the Managed Funds by 20%. He is also the author of the bestselling and award-winning book Accelerate Your Wealth—It’s Your Money, Your Choice, which is available in all good bookstores and online.