During the economic recession, you must protect your finances without panicking. As the news came that the Nifty has 3 consecutive monthly falls in the month of August, investors have been quite impulsive with their finances. With the prospect of economic crisis and economic slowdown in the near future, people are getting worried about their investment plans. The best investment mantra which you need to focus is not to panic and take some important steps to overcome this economic recession.
Following are some important steps to safeguard your finances during the economic recession-
Continue your SIPs
During the economic slowdown, if you stop your SIPs, then probably it will be a huge mistake for the equity investors. The main advantage of SIP is to yield more units during the market fall. So, after the economic recovery, you can make a huge corpus out of the accumulated units. If you experience an economic recession during the middle or beginning stage of your SIPs, you tend to gain more units at a lower cost. You must continue your SIPs if the investment horizon is 5 years plus. But if it is next 2 to 3 years, then it will be better if you withdraw the corpus and invest in the liquid fund to protect your finances during the economic crisis.
Build an Emergency Fund
Creating an emergency fund is a great step to protect your finances during the economic recession. The most important part of a financial plan is to create an emergency fund which you can use it for the expenses up to 6 months or 12 months. Keeping in consideration the family size, expenses and earnings and also unforeseen expenses, you need to plan the emergency fund to overcome the economic slowdown. If you are planning for 12 months expenses, you can invest in debt mutual funds. But if you are planning for 6 months of an emergency fund, you can invest in a mix of flexi-fixed deposits and short term debt funds.
Strategize for the liabilities
During an economic slowdown, it is quite difficult for you to pay the existing debts. If you are a retail borrower, then you would miss out the formal loan restructuring mechanism in case of corporate defaulters. With good repayment history and justified economic condition, you can request the lender for rescheduling before the economic recovery begins. By extending the repayment tenure against any kind of loans must be in sync with your repaying capacity. After the economic recovery, you must prepay a lump sum amount to reduce the interest burden and repay the loan.
Invest in Funds with Low Volatility
To safeguard your finances during the economic recession, you need to invest in low volatile funds. By investing in hybrid funds like balanced advantage or dynamic asset allocation fund, you get an equity exposure with arbitrage derivative. Also, by investing in multi-asset funds, you get to enjoy asset diversification under a single fund which protects your finances against the economic recession.
Check your spendings
One of the most important step for financial planning at the time of economic slowdown is to keep a check on your spendings. Avoid eating out too much or postpone any big purchase. You can also go for ‘refurbished’ gadgets which offer fresh warranty at a lower price. To protect your finances against the economic recession, you must not start purchasing with the money that you are supposed to get in the future like- salary increment, annual bonus, etc. Most importantly, you must check your regular spendings and try to avoid unuseful purchases.
Don’t switch jobs frequently
When you are thinking of job change especially during the economic recession, you must have an in-depth study on the company you wish to join. Try to find out the economic stability of the company and how it is coping up with the economic slowdown. You must be part of that company which is successful to cope up with the economic turbulent condition.
Try investing in US funds, gold
To protect your finances against economic crisis, you can try investing in gold. With almost 10%-15% gold exposure, you can easily safeguard your finances against the recent economic recession. You can opt for gold sovereign bonds or gold ETFs and try to avoid buying the physical gold.
You can try investing in US-focused equity funds which helps in hedging the currency risk and safeguarding your finances against economic recession. With US-focused equity fund investments, you get currency diversification as well as geographical diversity.
Restrain from property investment
In top Indian cities, the housing market has not performed well in the last 1 year except in Hyderabad. With the prospect of economic recession, the huge inventories can take more than 3 years to clear. If you want to invest in a second property in the prevailing situation, you must wait for some time. This is because, if you take a loan to purchase the property, you will be paying an interest rate of 8% to 9%. And the interest rate will likely to rise a minimum of 4 to 5% which will be an investment loss on your part.
Family Health Insurance is necessary
One of the common mistake that people does at the time of economic recession is to cut out health insurance. In your portfolio, health insurance for the family acts as wealth protector against any medical expenses or emergencies. Always ensure health insurance for the family despite group medical cover offered by the employer.