Where To Invest During A Recession: All You Need To Know

The word ‘recession’ has the power to strike fear in the hearts of people across the globe. During this time, thousands of people lose their jobs, the economy goes into a downturn and there is an overall pessimism and negativity that plagues us.

In times like this, how should you handle your investments? Read on to find out!

What Happens During A Recession?

One of the first signs of an impending recession is a weak capital market. The GDP drops significantly. There is lower production, higher unemployment and high inflation. In other words, everything becomes more expensive while people have less money.

This manifests in dropping the valuation of companies. People liquidate their holdings and hold on to cash instead. The insistent sell-off prompts a faster fall in share prices.

If you look at the stock market during times like these, it is pretty much a bloodbath. There is red everywhere you look. Even top-performing companies take a hit and the stock prices fall.

Where To Invest During A Recession?

It is a normal instinct to want to sell off your investments when you see the financial markets crash. People are scared, and they want to hold on to whatever cash they have before the investments lose all value.

Times like recessions are, however, the ideal opportunity to invest. As Warren Buffett so eloquently puts it, “Be fearful when others are greedy and greedy when others are fearful.”

Read on to learn why:

Blue chip stocks, solid companies that have established their reputation and are expected to grow several-fold in the future are ideal long-term investments.

But the issue is that everybody wants to buy these stocks. Look at Reliance or TCS for instance. These stocks are almost always overvalued. There is too much demand, and no one wants to sell quality shares. As a result, the prices keep increasing.

These stocks are a good buy at any price. But if you get a chance to buy it at a cheaper price, that just adds to your profits.

During recessions, even blue chip stocks are available at a discount. The overall fall in the market has a ripple effect that influences even the strongest of companies.

During the onset of the COVID-19 pandemic in India, Nifty fell by about 29% and that caused a full-blown panic among everyone, except smart investors.

The smart investors knew that the economy would recover. They used this opportunity to buy quality stocks at a discounted price. And they reaped the benefits when the investments doubled within a few months!

Investment Strategies During Recession

Blue Chip Stocks

As mentioned, a recession is the best time to buy blue chip stocks. Companies which are normally overvalued are available at a discount.

PRO TIP: Keep a watchlist of some of the stocks that you would like to add to your portfolio. When the opportunity presents itself, buy them for the long term!

Equity Mutual Funds

It can be daunting for beginners to select quality companies. After all, it is very hard to tell which company will do well in future without deep analysis.

Equity mutual funds offer a neat solution to this problem. There is a dedicated fund manager who takes care of the entire selection and investment process. All you have to do is put your money in the fund. The fund manager will then invest it as a whole.

Sectoral Funds

Normally, sectoral stocks are quite expensive. During a recession, however, because the entire economy experiences a downturn, sectoral funds are available for quite cheap. Use this opportunity to diversify your portfolio and include technological, automobile, banking and other sectors in your portfolio.

Real Estate

A recession is also an excellent time to buy real estate. Because of the overall fall in demand, you will get high-quality properties at throwaway prices. So, if you have any plans of buying a house in the future, save up and wait for the right time.

Plus, to encourage easy credit, you’ll also be able to access home loans at very low-interest rates!

BOTTOM LINE

The most important lesson to remember is: don’t panic. The economy will always recover. The tides will turn, and hard times will pass. Keep a level head and stick to your plan. The rest will follow!

For more such finance stories, stay tuned to HerZindagi.

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