Today, the world is seeing one of the worst financial crises. The market has plunged globally within weeks. And as per the statement given by the World Bank Group, 60 million people could face extreme poverty as a result of the current Covid-19 pandemic, which would wipe away three years of progress internationally.
Considering the current situation, market recovery is going to take time.
Consumers will be unwilling to leave their homes and spend money because of the fear of infection for several months, if not years to come.
If you are an investor, you must be worried like all others. But by undertaking some pragmatic strategies, you can still thrive during market downturns.
- Don’t make high-risk investments
It is not wise to take risks during a crisis with your investments. Better play it safe and stay away from companies that are high in debt or risky.
The highly leveraged companies are more vulnerable to tightening credit conditions if there is a recession. Apart from struggling to pay their debts, they will be facing a decrease in revenue brought about by the recession. The possibility of bankruptcy or a steep drop in shareholder value is high.
Find companies with good cash flow and low debt to make a safe investment. Don’t take any major risks when the times are already uncertain.
- Invest in essential items in the equity market
If you are going to invest in the equity market, invest in essential items that people need and will purchase in spite of their poor financial situation.
The essential commodities could be food, beverages, alcohol, tobacco, and specific household goods.
- Don’t invest on cyclical stocks and assets
Since cyclical stocks often rely on employment and consumer confidence to do well, they are to be avoided during a recession. Consumers will not be spending on non-essential or luxury items. For instance, industries that produce high-end cars, furniture, or clothing are to be avoided.
Find non-cyclical industries that offer goods and services that people need year-round like grocery stores, soap, toothpaste, cosmetics, discount stores, gas, and funeral services. They will do well during economic downturns.
- Invest in different sectors
Even when you are investing in consumer staples, ensure that you invest in different sectors.
During unpredictable times, making investments in diverse sectors will ensure that you don’t lose all your money in case a particular industry loses value.
Also, the distribution of assets within individual asset classes is important. It will distribute the risk among the asset classes but also reduce risk within each asset class.
- Invest in real estate
Make careful investments in real estate. Usually, during a recession, there will be a drop in home values. You can purchase a property at a lower price and make a big profit in the future after the market has recovered.
In the meantime, consider renting the property to a tenant. It will bring reliable passive income short-term.
- Invest in dividend stocks
Dividend stocks are great for generating passive income. When you invest in a company as a shareholder, you will receive a share of the profits made by the company.
Be cautious of companies that have a high debt/equity ratio. To be safe, look for companies that have improved their dividend payments for at least 20+ consecutive years.
- Invest in precious metals
A popular investment strategy in times of crisis is investing in precious metals. The value of precious metal has been going up over the last several years. And during hard times, its value is likely to skyrocket as investors will be looking for a safe haven.
Instead of investing in derivative securities such as gold mining stocks, invest in physical metal.
Gold is more likely to retain its value during uncertain times and recession. Silver also tends to work quite well.
- Invest in small savings schemes
Though not a very popular option for big investors, investing in small savings schemes ensure that your capital stays safe and you get steady returns though interest rates can be low due to the crisis.
- Invest in a non-cumulative fixed deposit
By investing your money in a non-cumulative fixed deposit, you can earn regular interest pay-outs. The interest is paid on a monthly, quarterly, and half-yearly or yearly basis. You can choose the frequency of the interest payout while you apply.
Whichever investment strategy you intend to apply, do it meticulously. The current pandemic has given a blow to the global economy. And it looks like it will take years to recover.
The ripple effect of employees losing jobs, events getting canceled, social distancing protocols, and the fear of going out and getting infected is going to deter people from spending money.
However, it doesn’t mean you can’t invest anywhere. With careful planning and strategy, you can still multiply your money.
Richa Parmar is an architect and passionate in the field of designing & creativity. Her inclination towards nature has made her take up a lot of challenging assignments in the subject of “landscape” and also has made her initiate to write blogs. Presently she works as a Senior Manager cum Architect Blogger at GharPedia portal. You can reach her at LinkedIn.