Many data and facts released in 2019, show us that we are in a deep economic slowdown GDP Growth of 4.5% for July- Sept Quarter at 26 Quarter low, Falling Auto Sales, NBFC Crisis, Unemployment at 45 years low, Liquidity freeze etc.
After a slow economic growth in 2019 will India hit a recession in 2020 and if there is a recession how do you protect your money and investments?
Will Recession Arrive in 2020?
No Guru in this world can correctly predict when will a recession arrive in the market, you can only expect it to arrive at a certain point of time. Similarly, you cannot predict recession it may arrive in 2020 or 2021 or may never arrive. Instead, you can only expect a recession and be prepared for it financially.
How to be prepared for the recession?
It is important to be prepared for the recession before it arrives, you need to execute certain steps so that you are financially ready to face recession as and forth it arrives.
1) Keep an Emergency Fund
It is an important financial rule to keep an emergency fund of at least six months of your expenses in a liquid fund. This emergency fund helps you to survive the recession even if you lose your job or business during the recession.
Always keep your emergency fund in a liquid investment such as Liquid Funds, Bank Fixed Deposits, Savings A/c where you can easily cash out the investments. Avoid Equity Shares, Equity Mutual Funds or any long term investment to park your emergency fund.
Also, it is important to protect your emergency fund for recession or emergency and not use for any other purposes.
2) Reduce your Debts
The next step is to repay all of your Debts as fast as possible. Repay your Credit Card, Student Loan, Housing Loan or any other type of loan before the recession arrives.
If you repay your debts before the recession, and if the recession arrives and you lose your job you be in less mental stress as you have repaid all of your loans.
Losing Jobs with high debts on your head can cause you to file bankruptcy, sell your assets or in some cases we have seen people commit suicide when they are unable to repay their loans.
3) Avoid Investing when the market is at record highs
Before the market hits a recession, Stock Markets are hitting records high as we saw before the 2008 recession as well. So it is important to avoid heavy investing at such times because when the market falls you would be in a mountain of losses on your new investments.
Avoid Investing whenever the markets are at record highs and sit on Cash, so once the markets fall you will be able to invest when the markets are cheap.
SIP Investors should continue with their SIP’s regularly and should not stop investment as SIP’s are not meant for timing the markets. They are for regular disciplined investment over a period of time irrespective of market conditions.
4) Improve your Cashflow
Another Step to improve your financial stability before the recession is to improve your cashflow. Invest in debt & debt-related securities that regularly pay Interest / Dividends to help you improve your regular cash flow. Look for Securities that pay you regularly such as Post Office Deposits, Bank Deposits etc.
Consistent Cashflow helps you in recession to pay your bills even when you lose your job and you don’t have regular salary income coming to you every month.
Avoid Real Estate Investing regular Cashflows, as Real Estate prices fall heavily during the recession.
5) Look for new streams of Income
The final step to be financially prepared for a recession is to have extra streams of income for you. Avoid relying on only your salary and look for alternatives which you can perform after your job.
There are various tasks you can do after the job hours that can help you build extra streams of income. You can opt for online tasks such as E-Commerce, Blogging, Freelancing, Youtube, Stock Photography etc which you can perform in your free time and earn very well.
If you are not comfortable doing these online jobs you can do some offline jobs as well which you feel comfortable doing and they pay you decent money.
Also Read – FD vs Mutual Fund Where to Invest?
What to do if the Recession arrives?
After that, we have discussed how to ready for recession. Now it is important to know what you should do when the recession arrives
1) Control your Expenses
The first thing to do in the recession phase is to cut down on your unnecessary expenses. It is important to cut down expenses so that your emergency fund can last for a long time.
Avoid unnecessary Credit card shopping, buy only things which you really require, pay your bills on time and avoid paying heavy interest and penalties.
2) Avoid Fresh Investment
Whenever you are in a recession and market falls it is common to be tempted to invest in falling markets, but only the problem is that you don’t know how much markets will fall.
Once you invest in falling markets it is like catching a falling knife you don’t know much markets will fall. Invest only after markets have consolidated and find supports at certain levels and when the economy is improving.
3) Continue with your SIP
Whenever you are investing in Mutual Funds with SIP it is important to continue your investments. Since the markets are down and at bottom levels your investment will fetch you more units.
This will help in better cost averaging for your investments and better returns in the long run. So Always continue with your SIP, irrelevant of market conditions and always be disciplined with your SIP Investing.
4) Start Investing After Market Crash
Now the final step after the recession is to buy cheap stocks with the cash you have. Stocks normally fall 40% to 90% during the recession. With the cash you have, it is important to start buying fundamentally strong companies which are available at dirt-cheap valuations.
If you see the records, All the gains that have been made in the Stock Markets have been made by investing after the market crash.
Whenever you buy after the crash you buy stocks at 50% to 90% discount and in the future when markets reach and break previous record highs you make very good gains.
Smart Tip – To Invest in Shares you require a Demat Account. We Personally use and recommend Upstox. Read our Upstox Demat Account Review and Step by Step Guide on How to Open Demat Account with Upstox.
After such a long discussion, now it is important to conclude the topic.
It is impossible to predict whether the Recession will hit India in 2020. But after looking at data and facts of 2019, India might hit a recession in 2020 or If the Government / RBI takes a corrective action we might avoid a recession. Global factors seem to be easing with the deal of US-China trade war signed, so global factors look promising with Presidential Elections in the US in 2020.
Other factors such as Crude Oil Prices, RBI Monetary policy, Dollar to Rupee Rate, Inflation, Taxation, Government Spending will affect India and might trigger a recession in 2020.
Irrespective of whether recession hits in 2020 or 2021 it is important to be aware of how to be prepared for recession and how to survive during the recession.
So will there be a recession in 2020 and will you be able to survive it?