How and where to invest for Recession Proof Bets?

Investment options that are not affected or least affected by economic downturn

Mr. Bhavin Patel, Co-Founder & CEO, LendClub said, “The investment instruments least affected by the economic downturn 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 such as peer-to-peer (P2P) lending or fixed-income instruments have emerged as alternatives that offer good returns while being non-market-linked. So these are attractive investment options.”

“While all investment options are subject to some degree of volatility and risk, market-linked asset classes are the most likely to be affected by any type of economic turmoil or recession. Real estate is a fairly stable asset class by nature and It is not directly marketed, making it a bit safer. Commercial real estate, one of the most stable and promising asset classes, has been showing a decade-plus growth in demand and performance. Also , the increase in demand for India’s real estate and the increase in FDI has made this sector even more buoyant. In any case, maintaining a healthy mix of different asset classes is essential for a strong financial portfolio to maintain a balance ,” said Sudarshan Lodha, cofounder and CEO, Strata Property Management.

Appliances that are likely to be affected by the economic downturn

Mr. Bhavin Patel, Co-Founder & CEO, LendingClub said, “Instruments that get affected by economic slowdown are market linked asset classes. Market-linked asset classes include stocks, cryptocurrencies, equity-linked mutual funds, and certain commodities that are volatile in nature during economic downturns. Businesses that benefit when the economy is strong and whose profits are closely tied to the overall economy tend to do poorly during recessions. As a result, in tough times many stocks often decline along with the economy. Also, this year we saw an overall decline in the global crypto market. Some well-known cryptocurrencies, which saw a sharp rise, fell at a similar pace due to different market conditions. Hence, one should avoid investing in such instruments when the market is volatile.

How should investors prepare for a downturn?

Mr. Bhavin Patel, Co-Founder & CEO, LenDenClub said, “Make sure you have an emergency fund to reach out to. Try to keep enough cash with you, which can tide you over in such challenging times. Invest in an asset class that gives superior returns, is moderate or low in risk, and offers flexibility in terms of tenure from a trusted platform regulated by an Indian institution. Additionally, try to pay off your debts, if any, before entering the recession. When there is an atmosphere of recession all around, then becoming debt free will give more relief. Finally, have a steady source of income. It is important to keep working as it will help maintain the cash flow in the house.”

“It is important to get your financial house in order to survive recession and even the current level of market volatility. Some of the ways to protect yourself include maintaining a diversified financial portfolio with a significant proportion in stable alternative asset classes. are not market-linked, avoid unnecessary large expenses, and have a proportion of savings that is easily liquid. Also, seek returns that beat inflation to avoid negative returns over the long term. It is very important to consider investing your money in avenues that offer. During a recession, it is important to consider your long-term goals and avoid making hasty decisions that may prove costly and cost you your investment. Besides, diversification is the best way to ensure a healthy and stable investment portfolio in the long run, even though it may look tempting to invest in some short-term, high-yielding options,” Sudarshan Lodha, co-founder and CEO CEO, Strata Property Management said.

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

Mr. Bhavin Patel, Co-Founder & CEO, LendingClub said, “It is generally advised to invest in quality assets to protect the portfolio during downturns. One can invest in evergreen sectors like education, healthcare or finance as they are more stable than others. Diversification is the key to reducing risk factors, and it helps optimize your portfolio.”

“While each asset class has its own set of pros and cons, real estate classes such as fixed asset classes, government gold bonds, etc. can be the best bet during a downturn. While the market may seem worrisome in bearish times, it is always advisable not to trade too much and invest your money for a longer period of time to recover any losses and make higher returns. During recessions, most investors should avoid investing in companies that are highly leveraged, cyclical or speculative, as these companies pose the greatest risk of underperforming during tough economic times,” said Sudarshan Lodha, cofounder and CEO , Strata Property Management said.

“A better recession strategy is to invest in well-managed companies, which have low debt, good cash flows and strong balance sheets. As stated above, stable asset classes like real estate and gold bonds are the most vulnerable to recession waves. There are asset classes worth considering during or after the expectation. Investing in blue-chip stocks, sectoral funds and mutual funds that invest in bullish or stable sectors can be considered a wise investment option during these tough times, Sudarshan Lodha said.

Disclaimer: The views and recommendations given above are those of individual analysts or broking companies and not of Mint. We advise investors to do due diligence with certified experts before making any investment decision.