“Successful people save in prosperous times so they have financial cushion in times of recession” – Brian Tracy  

Recession is the more talked about topic in the last few months. No one can predict when the recession will come but you can be ready for it. Understanding recession is important to be able to invest and follow certain strategies.

Recession is part of the Economic cycle across the world. Technically if the economy slows down for 2 consecutive quarters then that country is said to be in recession. Even in this cycle there are few sectors which will grow and interest rates will be lowered so that the entire economy gets kick started.

Check out this link where the entire range of economic cycle is provided by Fidelity Investments  – https://institutional.fidelity.com/app/item/RD_13569_40890/business-cycle-update.html

All these are macro level indicators which grow up and down in any economy, RBI and Government makes decisions to grow their economy based on these indicators. 

Investing strategies during recession

By now I believe you should be clear how recession impacts economy and you can benefit investing. You can follow in addition certain investing strategies during recession. Here are my 5 point checklist which will help you to start fresh investment or plan your existing investment accordingly,

1. Time Period of Investment  
2. Returns 
3. India & Recession 
4. Listening to Others 
5. Financial Goals 

Time Period of Investment 

Any investing strategy should have a time period to generate good returns. 

If you can invest for a few days to a few months, then you can get only on par with savings account rates or fixed interest rates.

If you can invest upto 1-2 years, you will still get returns around 7-8% in Ultra Short term funds or Peer to Peer lending platforms in the recent times. 

If you can invest upto 3+ years, then you have hybrid funds which can get better returns compared to fixed deposits. 

Only in the long run of 5+ years, you can choose to invest in Equity mutual funds and stocks. You can get better returns in double digits.

If you don’t need money in the next 1-2 years, you can leave your investment as it is. There are many who chose to withdraw their investments just out of fear. Any recession has lasted not more than 18 – 36 months. Exceptions have been the 2008 great recession and 1929 Great depression. 

Don’t act out of fear, think about your investment timeline.  

Returns 

Returns will be higher in the long term and based on the type of investment you make. 

I have seen many postponing their investment just because of the recession which might come in the next 6 months. 

The most important question you should ask yourself is, “Do I need money in the next year ?” 

“Do I have money to take care during an emergency ?”

Once your answer is ‘Yes’ for the above 2 questions then you can start investing based on your timelines.

If at all you have already invested and you need to withdraw the money within the next year, then it is good to move it into debt funds or have it in fixed deposits.

Returns will go down if you are investing in equities only during that specific time period of a few months. So rethink your investments in that angle alone. 

Returns from Mutual funds even during recession time have been in double digits.

Source – Advisorkhoj

India & Recession 

India went through recession in the 90’s and again during Covid times. As the entire world came to a halt, India was also forced to act in accordance. Due to which the economy had fallen to the low of -7.3%.

India recovered strongly after covid once the demand started coming back into the economy. 

Note – This is Economic growth till covid alone 

World has gone through recession several times since the 90’s but India always had positive growth. Economy would have slipped 1-2% during these times. Stock market would have corrected or stayed within a range but always generated positive returns. 

Most of the Indian Ceo’s have projected recession in next 12 months but it may be mild and short. 

You should worry about recession only if your job is at risk. If you have an emergency fund to take care for 8-10 months, then you can plan to get the next job at the earliest.

Listening to Others 

One of the worst things to do is listening to others who doesnt have much knowledge in personal finance. Every sector will have its ups and downs but your investment decision should be based on your time period of investment and when you need that money. 

One of the client had postponed his investment in Fractional commercial real estate just because his cousin brother said that their business may slow down in the near future. Your business is different and your investment is different. If you mix both then you will not make correct decisions. 

Another one wanted to invest but he was worried about recession and how the stock market will behave during these times. He is close to 60 and has seen several market downturns. Now with no dependents and no priorities, his investment decision should have been taken in consultation with an expert. 

Look at the above points on how recession will play out in India and based on your money priorities choose investment products.

Financial Goals 

Investments should be done based on financial goals. If you had done that by now you will know whether recession will affect your investment returns in next 1-2 years. 

Even if you are starting new, think of your goals and choose mutual funds or other investment products accordingly.  

Just like change in weather, this change in economy may bring recession at a point and no need to worry if you are clear with your personal finance.

Are you worried about recession now ? Please share your comments