How and where to make investments for a recession proof bet?

Global inflationary tensions are caused by geopolitical upheavals, which began with the Russo-Ukrainian war, which increased the cost of food and energy commodities. After that, the US Federal Reserve started the cycle of raising interest rates. In turn, this has raised fears of a global recession due to slowing growth in major countries and rising inflation, which has hit a 41-year high in the UK. Many analysts think the impact of multiple Federal Reserve rate hikes is about to trigger a recession in 2023. We spoke to industry experts about how investors can make recession-proof investments as the likelihood of a global recession is increasing as central banks raise interest rates amid the ongoing fight against inflation.

Investment options that are not affected or least affected by the recession

Bhavin Patel, Co-Founder & CEO, LenDenClub said, “The investment instruments that are less vulnerable to recession are stable asset classes such as gold, bonds and debt/equity instruments. determined. But some of these may not be profitable. On the other hand, new-age asset classes such as peer-to-peer (P2P) lending or fixed-income instruments have emerged as alternatives that offer good returns while not being linked to the market. Therefore, these are lucrative investment options.”

“While all investment options carry a certain degree of volatility and risk, market-linked asset classes are most likely to be affected by any kind of uncertainty or economic downturn. any. Real estate is a remarkably stable asset class by nature and it’s not marketed directly, making it a bit safer. Commercial real estate, as one of the most stable and promising asset classes, has seen demand and performance increase over a decade. In addition, the increase in demand for Indian real estate and increase in FDI makes the sector even more bullish. In all situations, keeping a balance by maintaining a healthy mix of different asset classes is essential for a healthy financial portfolio,” said Sudarshan Lodha, Co-Founder and Director Executives of Strata Property Management said.

Instruments that are likely to suffer from the economic downturn

“Instruments affected by the recession are market-linked asset classes,” said Bhavin Patel, Co-Founder & CEO, LenDenClub. Market-linked asset classes include stocks, cryptocurrencies, equity-linked mutual funds, and certain commodities that are volatile during economic downturns. Businesses benefit when the economy is strong and their profits are closely related to the economy as a whole doing poorly during a recession. As a result, many stocks regularly drop in price with the economy when times are tough. Also, this year we have seen the overall decline of the global crypto market. Several well-known cryptocurrencies that saw strong increases have fallen at similar rates due to various unsupportive market conditions. Therefore, one must refrain from investing in such instruments when the market is unstable.

How should investors prepare for a recession?

“Make sure you have an emergency fund to reach,” says Bhavin Patel, Co-Founder & CEO, LenDenClub. Try to bring enough cash to be able to rescue you in such difficult times. Invest in an asset class that offers higher returns, medium or low risk and offers flexibility in terms of duration from a trusted platform managed by an Indian legal entity. Also, try to pay off your debts, if any, before the recession hits. It’s easier to be debt-free when there’s a recession around. Finally, have a steady source of income. It is essential to keep working because that will continuously help maintain the household’s cash inflow.”

“Getting your financial house in order is crucial to surviving the recession and even the current level of volatility in the market. Some ways to protect yourself include maintaining a diversified financial portfolio with a significant proportion of stable alternative asset classes that are not linked to the market, avoiding large unnecessary expenses. and have an easily liquid savings rate. Also, it is very important to consider depositing your money in profitable paths that surpass inflation to avoid negative returns in the long run. During a recession, it’s important to consider your long-term goals and avoid making hasty decisions that can be costly and cost you investments. Also, diversification is the best way to ensure a healthy and stable portfolio over the long term, even if you may find it tempting to invest in a number of short-term, high-yielding options. ,” said Sudarshan Lodha, Co-Founder and CEO, Strata Property Management.

What investments or sectors perform best and worst during a recession?

“Investing in quality assets is often recommended to protect a portfolio during downturns,” said Bhavin Patel, Co-Founder & CEO, LenDenClub. One might consider investing in evergreen sectors such as education, healthcare or finance as they are more stable than others. Diversification is key to reducing risk factors and helping to optimize your portfolio.”

“While every asset class has its own pros and cons, stable asset classes like real estate, gold government bonds, etc. can be the best choice for one during a recession. . Although the market may seem worrisome during a downturn, you should not over trade and hold your money for long to recover any losses and generate more profits. During a recession, most investors should avoid investing in highly leveraged, cyclical, or speculative companies, as these companies run the risk of underperforming during the economic period. difficult economy,” said Sudarshan Lodha, Co-Founder and CEO of Strata Property Management.

“A better recession strategy is to invest in companies that are well managed, have low debt, good cash flow, and a strong balance sheet. As noted above, stable assets like real estate and gold bonds are the ones to watch out for during or while anticipating a recession wave. Investing in blue-chip stocks, sector funds and mutual funds that invest in bullish or stable sectors can be considered a wise investment choice in these difficult times, said Sudarshan Lodha. .

Disclaimer: The views and recommendations expressed above are those of individual analysts or brokerage firms, not those of Mint. We advise investors to check with certified professionals before making any investment decisions.

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