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If we’re heading for a global recession, this is what I’d do with shares

Last week’s news was full of doom and gloom. The International Monetary Fund (IMF) warned that the global economy is slowing more than the organisation expected. There could be a sharp downturn on the way.

If it happens, the IMF reckons global leaders will need to coordinate stimulus measures to get things moving again. Meanwhile, The European Central Bank (ECB) kept interest rates on hold, extending its easy monetary policy. That’s not surprising because Germany is close to recession already. What’s the problem here? Some put it down to weak demand from beyond Europe and political turmoil.

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There’s always something to worry about

Ah, yes, political turmoil. We know all about that here in the UK. But the FTSE 100 is flying, along with the price of oil. What a confusing picture! But if you are an investor focused on shares, it’s not really worth trying to wrap your brain around it all, in my view.

Recessions and downturns can end up being good opportunities to invest in shares at advantageous prices. I certainly wouldn’t rush out and sell all of my shareholdings because of worries about the macroeconomic picture. The truth is, there’s always something to worry about and that’s why the old adage ‘stock markets climb a wall of worry’ gained popularity.

If the general stock market weakens in a downturn I’d expect some of the shares in my portfolio to fall back a bit. But if I’ve chosen my holdings well, I think there’s every chance that they’ll bounce back. I think it’s key to make sure that every share is backed with a strong business capable of growing over time.

Shopping for great businesses at reasonable prices

Making the decision to hold on to shares through general weakness frees me to concentrate on hunting down potential bargain purchases at better prices. In a bear market – if we get one soon, and it’s a big ‘if’ – the shares of great underlying companies can sell at lower valuations and that’s often the time to snap them up.

One way of making the most of the opportunities that arrive in a bear market is to keep a watch list of shares that you’ve previously researched. You’ll then know in advance that they are backed by good businesses and can buy with relative confidence when the ‘right’ share price arrives. Often, the best shares to buy will probably already be in your portfolio, so you can look for opportunities to buy more shares of your existing holdings.

If I was regularly investing in index tracking funds, such as one following the FTSE 100, I’d do nothing differently in a bear market, I’d keep buying. When the index is down, I’ll get more for my money, and the process of compounding will build up my invested funds over time. It’s the same principle with individual shares.

I don’t know what will happen next with the global economy, but I do know that I will keep investing whichever way it goes and expect a decent investing outcome in the end.

How to prepare for the next stock market correction

Nobody likes to see the value of their portfolio fall; the benchmark FTSE 100 index dropped some 12% in 2018 and there are signs the record-breaking bull run may well be over. Bear markets can be scary, but they are not the end of the world… in fact, with careful planning, you can even aim to turn today’s uncertainty to your advantage! Download The Motley Fool’s Bear Market Survival Guide to discover the five steps we believe could help bolster your portfolio in a downward market.

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Kevin Godbold has no position in any share mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.