February 7, 2023

What we see in the news is a constant reminder of the stock market’s depreciation and inflation rates, which have created unease for the average investor. 

As prices go up, lending opportunities go down, and knowing how to survive, much less thrive, in these uncertain economic times is crucial to securing and stabilizing your financial future. 

Fears Of A Coming Recession

Treasury Secretary Janet Yellen has seen the potential for lower inflation in 2023, but that by the end of the year, a recession is still a strong possibility. Even with the outlook that inflation is slowing, Yellen admits that the Central Bank will continue to raise interest rates to slow inflation even more. 

When the Central Bank raises interest rates, it costs borrowers more to get a loan and higher percentage rates to pay them back. Limiting money makes it so that there are fewer options to buy, slowing demand which is one of the primary drivers of inflation.

So how does the news affect you and DeFi specifically? 

By understanding what the traditional markets are projecting, you can safely navigate any of the investments you have to leverage DeFi and conventional investment vehicles to your advantage safely. 

Ways To Safely Invest During Times Of Recession

During a recession means, the economy slows and contracts. With lending also more complicated, some businesses shut down or have to slow down hiring, which raises unemployment. Higher unemployment means less purchasing demand, which, in effect, helps to drive down inflation. 

A mix of digital and traditional investments is an excellent strategy to buoy your portfolio during a period of recession, including Treasury-protected securities and DeFi opportunities like Yield Farming should be considered. 

TIPS

TIPS stands for Treasury Inflation-Protected Securities and is a security that is indexed to the rate of inflation. So when inflation is higher, so is the yield on this type of investment. 

Gold and Precious Metals

Gold and precious metals are an excellent way to hedge against inflation and a recession, as the value of these items is stable and slowly appreciates over time. Investing in precious metals includes a long-term strategy. 

Any person considering this type of investment needs to understand that the return may be better in the coming months and a couple of years. 

Still, over 10+ years, your investment is guaranteed to safely bring in an excellent rate of return better than a CD or savings. 

Real Estate

In a regular market or even one where inflation is high, real estate investments are an excellent way to hedge against inflation. The reason is that the rate of appreciation over time outweighs the costs of inflation. 

However, during a recession, when money is less available, real estate suffers as lending options are fewer, and inventory remains lower as a result. 

Cash buyers benefit during a recession, whereas a traditional borrower has a much more challenging time. 

Cryptocurrency

As an option, crypto provides investors the opportunity for high-reward but comes at some risk level. The decentralized nature of crypto, which gets its value based on demand, can lead to volatility regarding your investment, and this option should be considered aggressive. 

DeFi Yield Farming 

DeFi yield farming is a great way to make money on your unused crypto. As a yield farmer, you’d lock up unused crypto and offer them (loan) at an agreed rate to another party. Yield farming is also known by another name, mining. 

The way yield farming and mining works is like this; In return for using your crypto, the party would pay you a percentage or return. The benefit of yield farming is that it is a passive way to make money on new coins and tokens without risking losing value by sitting idle. 

By pooling your tokens with others, your crypto can be used as an asset by the borrower to make leveraged deals and force actions that benefit all the holders of those tokens. 

When it comes to protecting your limited savings, especially during economic downturns, an even mix of aggressive and conservative investment is wise. Understanding digital investments through DeFi and utilizing them as a tool for your investment strategies is a great way to balance your portfolio with a risk/reward opportunity that traditional investment opportunities lack. 

A combination of crypto and traditional investments is an excellent bet to park your savings and be able to weather the economic uncertainty of the next couple of years.