Recession is an economic cycle that brings a period of market slowdown. Such periods of decline can be a cause of concern for investors. The key to investing during economy slowdowns is to keep the wider picture in mind rather than just trying to balance the losses. It is at such times panic-stricken investors try to liquidate their investments into cash. Instead of taking decisions in a hurry and exiting all your investments, you need to know which investments can fetch you better returns even during the recession. Here are five investments that will work in your favour even during economic slowdown:
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Real estate is an interesting asset to invest in as it provides a safe haven to investors in a variety of scenarios. When the equity markets are showing a sharp decline, the real estate investments tend to be a better hedge. If you already own real estate then you can ride out recessions by renting out your property to a reliable tenant thus ensuring a regular stream of income.
The economic slowdown is a great boon for investors who are on a looking to buy their first residential property. When the recession hits, the value of real estate reduces due to a consequent drop in the overall interest rate regime. Thus an economic slowdown opens the opportunity for investors to invest and profit from real estate investments. Here are some of the ways you can profit from real-estate investments when the economy is down:
As we know, the demand for precious metals rises when the economy experiences a slowdown. The demand for jewellery is persistent as it is a luxury item. Also, it is important to note that certain countries like India are one of the biggest sources of jewellery demand. Thus a recession won’t necessarily change the demand for gold in such countries especially when jewellery is an important aspect of the social and economic life of its citizens. Gold jewellery especially is viewed as a status symbol and thus its price rises over time.
Investment in precious metals can be a great way to diversify your portfolio and safeguard your investments against share market losses during economic slowdowns. But since the demand for these commodities increases during recessions, their prices consequently go up.
The large-cap stocks that have a reputation of paying dividends regularly can be a great way to remain invested in stocks while generating a passive income during market slowdowns. While investing in dividend-paying stocks you must look to invest in companies that have a strong balance sheet and a low debt-to-equity ratio. If you are considering shifting your investments to dividend-yielding stocks then you must look out for companies that have been performing well and have given investors regular dividend payments in the last decade.
During the recession, you might be inclined to give up equity investments. But discontinuing all forms of stocks investments is not advisable. If you are investing in equities through mutual fund SIPs then discontinuing it is not a wise decision. It defeats the very purpose of SIPs that provides the investor with an opportunity to purchase more units of stocks when the prices are low. During a market slowdown, SIPs actually work in your favour. The NAV of the funds goes down when the market experiences a downturn. Thus you can use this opportunity to acquire more units at a lower price. Over the years when the market turns favourable, the accumulated units will help you to generate an attractive corpus.
See Also: Importance of Financial Planning
With the recession affecting the availability of jobs, you must try and create emergency funds. If you are a beginner or you are the one who lives paycheck to paycheck, its time you start investing a sum regularly in your emergency funds account like Short-term debt mutual funds or savings account etc. Building a kitty can help you manage grave financial situations like job-layoffs, medical emergencies and will allow you to suffice in such turbulent phases. As per the thumb rule, you must save an amount which is 6-7 times of your monthly expenses. To grow your savings, you may park your money in liquid instruments like a combination of short-term debt funds and Flexi-fixed deposits. Investing in these instruments will allow you to get good return on deposits while maintaining the liquidity of your funds.
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