Protecting assets during a recession

The global economic uncertainty that we are currently facing means that assets many individuals hold could be under threat from a downturn in value.

The term recession proof is used to describe an asset, company, industry or other entity that is believed to be economically resistant to the effects of a recession. Although many items have been labelled as recession proof, very few turn out to be so. Those that are considered recession proof are gold, treasury bonds and cash, while those who hold stocks turn to alcohol and utilities.

While nothing is 100% recession proof, those mentioned above are some of your safest bets. However, just like other assets you hold, there are methods and options available that help to secure and protect from ‘threats’ such as Government interference and potential lawsuits, as well as having to sell them should your company go into liquidation.

As well as looking at the assets you hold, you also need to think about the structure you hold the assets in. While every individual is unique, requiring a tailored solution to ensure assets are protected, it is worth considering a mixture of options including offshore companies and Trusts and Foundations.

Assets such as cash, property, gold, art, yachts, vehicles and planes can be held within an offshore company with ownership of the company held by a Trust or Foundation. There are several benefits to this, including protection from divorce, death duties, company liquidation etc. However, one of the main benefits is the privacy that this structure offers – including disguising ownership of the assets – as an offshore environment creates vastly greater privacy and creates layers and distance from the owners.

When it comes to the assets to own during a recession, there are some assets that have proven to weather the storm better than others.

 

Gold

Historically, during a recession, the value of gold has tended to increase so can be a sensible investment. However, it is wise to find the right place, company and country to store your precious metals.

There are several countries that are a possibility including Singapore, Switzerland and even New Zealand.

• Singapore has eliminated sales tax from the purchase of precious metals, along with making it easier for anyone to trade in and hold precious metals. Their storage facilities are some of the best in the world. They have developed a system where you can borrow against your gold in storage there, and even open an off-shore bank account with gold-backed debit cards which can be used in five different world currencies.
• Switzerland has always been regarded as the number one choice and still has the largest reserves of gold per capita. However, expect to see movement out of the country in the near future to countries such as Hong Kong or Singapore as fees are lower. If you have a lot of precious metals to hold, exploring/having a secondary site to hold your gold could be a good option. One of the best aspects to Switzerland is that they don’t have currency restrictions and individuals don’t have to report on cash or precious metals, unlike the rest of Europe that is waging a war on cash.
• New Zealand might seem like a curve ball, but their government is very wealth-friendly and so the chances of them confiscating gold is slim-to-none. And despite its isolation, New Zealand has a developed economy, a solid global reputation, and professionals who can help with your offshore gold storage, purchases, and sales.

 

Property

The current government is making it increasingly difficult to make a profit as a buy-to-let landlord, on top of the rising costs of inflation and interest rates.

There are several options when it comes to reducing the tax burden, as well as potentially protecting your property in light of the coming recession. Holding your property through a limited company can offer improved tax efficiencies and planning – for more information, read our blog here.

It is also worth exploring this option if you operate a business such as a restaurant. Splitting out your trading company and assets into two separate companies can protect the assets should the company be forced to liquidate during the recession.

 

Stocks and shares

During a recession, the stock market can be particularly volatile as companies struggle to remain profitable. However, there are certain stocks that offer a better chance of weathering the storm. These tends to be utilities, healthcare and staple products such as everyday cleaning products for the home.

Holding assets in Limited Companies can provide extra layers of protection such as limited liability insurance and the protection of personal assets.

However, be careful of opening up a limited company simply to trade and invest through. Your limited company should be a company in and of itself, and investing should just be a side stream of income. If investing becomes your main point of profit, it may affect your accounting and taxes.

 

What assets are subject to volatility during a recession?

For those willing to take a substantial risk during a recession then cryptocurrency could be an asset to look at. However, for most individuals, cryptocurrency has the potential to be one of the worst asset classes to hold during this period.

For those who are unsure what cryptocurrency is, our beginners guide provides an explanation of the basics.

For the most part, cryptocurrencies are generally unregulated, uninsured, difficult to convert into real cash, and can be extremely volatile. We saw a huge rise of cryptocurrencies during the Covid-19 Pandemic which was fuelled by the unprecedented amounts of liquidity that was released into the global financial markets and are not a true representation of where is stands.

While there is no hard and fast way to protect your cryptocurrency during a recession, there are still several steps you can take to protect from other outside influence such as lawsuits. Experts, such as ourselves, can help to ensure this area of your portfolio is protected as much as possible.

If you are looking at your whole portfolio and exploring ways to manage your assets through a recession, our experts can work with you to explore options and solutions that can be tailored to your individual circumstances. You can contact us here.