How and where to make investments for a recession proof bet? (2024)

Investment options that don't get affected or get least affected by economic downturns

Mr. Bhavin Patel, Co-founder & CEO, LenDenClub said “The investment instruments less impacted by economic downturns are stable asset classes such as gold, bonds, and fixed/debt instruments. But some of these may not be attractive in terms of returns. On the other hand, new-age asset classes like Peer-to-Peer (P2P) lending or fixed-income instruments have emerged as alternatives that provide good returns while being non-market-linked. Hence these are lucrative investment options."

“Although all investment options are subject to some degree of volatility and risk however market linked asset classes are most likely to be affected by any kind of economic turmoil or downturn. Real estate is a considerably stable asset class by nature and it is not directly marketed, making it a little safer. Commercial real estate, is one of the most stable and promising asset classes, showing a decade-long uptick in demand and performance. Also, a surge in demand for India’s real estate and increased FDI make this sector even more bullish. In any situation, keeping a balance by maintaining a healthy mix of various asset classes is needed for a sound financial portfolio," said Sudarshan Lodha, Cofounder and CEO, Strata Property Management.

Instruments that are likely to get affected from economic downturns

Mr. Bhavin Patel, Co-founder & CEO, LenDenClub said “Instruments that do get affected by economic downturns are market-linked asset classes. Market-linked asset classes include stocks, cryptocurrencies, equity-linked mutual funds, and certain commodities are volatile in nature during economic downturns. Businesses that benefit when the economy is strong and whose profits are closely related to the overall economy perform poorly during the slump. As a result, many stocks frequently decline along with the economy when times are tough. Also, this year we saw an overall decline in the global crypto market. Some well-known cryptocurrencies that witnessed a sharp rise had fallen at the same pace 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?

Mr. Bhavin Patel, Co-founder & CEO, LenDenClub said “Make sure you have an emergency fund to reach out to. Try to have sufficient cash with you, which can rescue you in such challenging times. Have investment in the asset class that gives better returns, is medium or low in risk, and provides flexibility in terms of tenure from a trustworthy platform regulated by an Indian entity. Additionally, try to pay off your debts, if any, before entering a recession. It will bring more relief to be debt-free when there is a downturn all around. In the end, have a stable source of income. It is essential to keep working as that will continuously help maintain the household's cash inflow."

“Getting your financial house in order is critical to surviving a recession and even the current level of volatility in the market. Some ways to protect yourself include maintaining a diverse financial portfolio with a significant proportion in stable alternative asset classes that are not market linked, avoiding unnecessary large expenses, and having a proportion of savings that are easily liquid. Also, it is very important to consider parking your money in avenues that offer inflation-beating returns to avoid negative returns in the long term. During a recession, it is critical to consider your long-term goals and avoid making hasty decisions that could prove costly and cost you your investments. Also, diversification is the best way to ensure a healthy and stable investment portfolio in the long run, even if it might feel tempting to invest in some short-term, high-yielding options," said Sudarshan Lodha, Cofounder and CEO, Strata Property Management.

Which investments or sectors perform the best and worst in a recession?

Mr. Bhavin Patel, Co-founder & CEO, LenDenClub said “Investing across quality assets is usually advisable to protect the portfolio during a downturn. One may look at investing in evergreen sectors like education, healthcare or finance as they are more stable than the others. Diversification is the key to reducing the risk factors, and it helps to optimise your portfolio."

“While every asset class has its own set of pros and cons, stable asset classes like real estate, government gold bonds, etc. can be one’s best bet during a recession. While the market might seem worrisome during recession times, it is always advisable to not trade too much and park your money long-term to recover any losses and build more returns. During a recession, most investors should avoid investing in companies that are highly leveraged, cyclical, or speculative, as these companies pose the biggest risk of doing poorly during tough economic times," said Sudarshan Lodha, Cofounder and CEO, Strata Property Management.

“A better recession strategy is to invest in well-managed companies that have low debt, good cash flow, and strong balance sheets. As said above, stable asset classes like real estate and gold bonds are asset classes worth considering during or while expecting a recession wave. Investing in blue-chip stocks, sectoral funds, and mutual funds that invest in bullish or stable sectors can be considered a wise investment choice during these tough times," said Sudarshan Lodha.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.

Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it's all here, just a click away! Login Now!

Published: 19 Dec 2022, 10:55 PM IST