Last Updated on Apr 24, 2020 by Aradhana Gotur

When you look closely, you would notice that a recession is not a bad time, after all. It is simply unpredictable, but a boon in disguise. Even with stocks nose-diving and interest rates descending, investing during a recession is still a good idea. You’re not convinced, is it? No worries, that’s why we’re here. To tell you why. So, let’s dive right in.

What depreciates today appreciates tomorrow

During a recession, your investment in every asset class seems to depreciate. Be it your house property, a well-performing share or even a fixed-interest instrument, everything seems to be going down. But that’s the catch. Once the economy starts reviving, these would appreciate and reap handsome returns. But hey, you will have to be patient, a little more than you are, to enjoy the fruits. This brings us to the next point.

Your wealth may drop before climbing again

The media is flooded with information, which can be overkill. Everyone has their opinions but no one can be sure of anything. During a recession, you’ll not know when the market will bottom out. It is simply unpredictable, a little more than the normal days. Therefore, timing the market might not bode well for you.


Let us see an example. Say that your favourite stock is in red today, at a price level you desire. Does this mean it won’t head further south? There are chances but you can’t say. So, if you invest in a stock selling at low a price and the share falls deeper, don’t freak out. That’s what happens during an economic downturn, things get more unpredictable. Even so, it doesn’t mean you should not invest during a recession. Reiterating this was important. So, yes. This brings us to the next point.

Patience is the key, at all times

If you have any idea about stocks—okay, let’s not go that way and take the easier route of plain investing. So, if you are familiar with the basics of managing your personal finances, you will know that the value of money multiples over time, thanks to the compounding power of time. But, just as a coin has two faces to it, time value of money also has the second side—vital to know.

That is, money multiplies, but takes time. This goes to say that more often than not, you won’t earn returns immediately after investing. You have to wait it out. If this is the case in normal times, you most certainly have to wait a little longer to earn returns during an economic downturn. Therefore, your foremost investment strategy during recession would be to invest with a long-term horizon.

Evaluate your risk tolerance and financial situation

No one has ever gotten anything good out of following others blindly. You may buy the same refrigerator as your neighbour, because they said it was really cool (or good). You may buy a car that has been talked about in the market. But you just don’t make a buying decision and go out there to bring it home.

You take time to evaluate your needs, research the product/service and do a cost-benefit analysis before finally forgoing your hard-earned money to purchase something. If you do all of this when buying a good/service, wouldn’t you do a tad bit more when investing during a recession? After all, your investment is the source of your potential gain/income. That said, you wouldn’t want to risk it, right?

Therefore, a special mention goes to managing your personal finances, i.e. evaluating your risks, availability of funds, and financial commitments before investing during a recession. Because safeguarding the money you have now is vital. So, you can’t go overboard and take high risks. When investing during a recession, ensure you have enough money for daily expenses, a robust emergency fund, ample insurance, and some liquid cash. If all these boxes are ticked, you can go ahead and invest your bucks in the right avenue.

So, there you are, you have it all. You know why investing during a recession is good and also the fundamentals that govern your investments at all times. You may now read some of the best investment options during a recession. This brings us to the point where we urge you to take up personal finance education now, because there’s no better time. Read our stack of Personal Finance education articles and Stock Stories for some insights.

See, you then!

Aradhana Gotur
Subscribe
Notify of
guest
0 Comments
Inline Feedbacks
View all comments

The blog posts/articles on our platform are purely the author’s personal opinion and do not necessarily represent the views of Anchorage Technologies Private Limited (ATPL) or any of its associates. The content in these posts/articles is for informational and educational purposes only and should not be construed as professional financial advice. Should you need such advice, please consult a professional financial or tax advisor. The content on our platform may include opinions, analysis, or commentary, which are subject to change, without notice, based on market conditions or other factors. Further, the use of any third-party websites or services linked on the website is at the user's discretion and risk. ATPL is not responsible for the content, accuracy, or security of external sites. Investments in the securities market are subject to market risks. Read all the related documents carefully before investing. Registration granted by SEBI, membership of BASL (in case of IAs) and certification from NISM in no way guarantee performance of the intermediary or provide any assurance of returns to investors. The examples and/or securities quoted (if any) are for illustration only and are not recommendatory. Any reliance you place on such information is strictly at your own risk. In no event will ATPL be liable for any loss or damage including without limitation, indirect or consequential loss or damage, or any loss or damage whatsoever arising from loss of data or profits arising out of, or in connection with, the use of this website.

By accessing this platform and its blog section, you acknowledge and agree to the Terms and Conditions of this website, Privacy Policy and Disclaimer.