How to Manage the Current Economic Slowdown?

Economic slowdown and recessions are not something new. As a matter of fact it has always been part and parcel of businesses and overall economic set ups. 

The economy has slowed down recently. The businesses are not doing well. There is speculation of a far more adverse days ahead. Amidst all these, the investor is scared and unsure of what to do. The automobile sector has been adversely hit. But it is not the only sector that has been affected. The shock waves travel across other sectors too. 

Every time such a situation arises, there are certain corrective steps that the government/businesses take to stabilize the market and it comes back to normalcy until the next recession hits. However no one wants to lose their money. Here are some things that you can do to keep floating during these hard times.

1. Do not stop your SIP’s

The very reason one invests in SIP are to benefit from market volatilizes. As a matter of fact these are the best times for investing in SIP’s. The low NAV would ensure that investor gets more units and once the market corrects they will be reap benefits.

Do not stop SIPs during Economic Slowdown

Particularly if you have mid-cap investments, you might as well wish to increase the investing amount. However while investing in SIP’s you must keep a time horizon of at least 5 years in mind.

Check out the blog on 5 Common Investment mistakes a beginner does

 

2. Opt for Options that are Less Volatile to Market Changes

Hybrid and balanced funds are a good option during these times. They basically balance their asset allocation between equity and debt. This help you survive the slowdown and are suitable for conservative investors

3. Do Not Look for Investment in Property or Real-Estate

The real-estate sector is kind of stuck up presently. Any investment would not yield you much return any time soon. There are so much inventory piled up that builders have been providing huge discounts and easy finances on housing property.

Any investment in these shall keep you hanging for quite some time before you shall get any return. However if you want a property for self-use immediately, this is the time. You can go ahead straight away.

4. Gold investments 

The steep rise in the price of gold are indications that people are opting the conservative gold investments as a resort against the current market scenario. Gold is a good option at present times. However when thinking about gold, you may wish to avoid ornaments or bullions.

They have a making charge associated with them which actually lowers your returns by increasing the cost. You may opt for gold ETF and sovereign bonds.

5. International Equity Funds

International equities in general and the US stocks in particular would be helpful. They provide diversification by the virtue that the investment ground is spread over various countries many of which are unaffected by the economy of yours.

Also these funds are USD dominated. Although you will invest and redeem in rupees, history says that the rupee valuation declines over time against USD. This shall add up to the NAV return of the fund.

6. Emergency Fund during Economic Slowdown is Must

An emergency fund is always a necessity even in normal times. The principal says that it should be a corpus of about 6 months of your expenses. However we recommend a minimum of 6 months of your income. The more the amount, the better. Single income households may think for an even higher amount. This shall be useful if there is loss of job.

Also, park this fund in a sweep account or a liquid fund. They give higher rate of interest compare to a regular saving account.

7. Medical Cover for your Family

A medical cover for yourself and your family is a must. This is helpful in case of hospitalization and medical expenses. It is a very good wealth protection scheme. You would prefer paying a meager premium regularly than to lose a chunk of your corpus in a blow.

Medical cover for your family during economic slowdown

The health cover provided under your company’s group medical cover policy is very helpful but it won’t be of use if you quit the job. Therefore it is recommended to have your own health cover.

8. Reduce Discretionary Expenses

We all have sometime come across the saying that a penny saved is a penny earned. Guess what? It is true! In these difficult times we can curtail our unnecessary expenses. You would like to reduce the number of times you eat out in a month. You should prefer to avoid ordering online under the pretext of saving on coupons and cashbacks. Avoid mood based expenses.

Do not make high value purchases now if you can avoid or postpone them especially during the time of economic slowdown. If at all needed, prefer refurbished or pre-owned products that come at much lower cost.

9. Become a Smart Borrower

If you have outstanding loans and you find it difficult to manage paying the installments due to job loss or other difficulties, you may want to consider restructuring your payment plans. You may approach the lender and explore options that suit you.

As an example you may increase the time period which will ease out your installment amount. But remember to pay back in lump sum once you have recovered from the financial crisis since a longer time means you pay more on the interest. 

10. Do not hastily Quit your Job

In the recent past a lot of companies have mushroomed and have grown rapidly. However these have bleed out of cash and are not doing well. Such start-ups may not even be able to recover anytime soon or recover at all. Therefore do not be too adventurous with your career.

When the market is down only the big giants are able to keep their heads above the water. Think wisely before changing your jobs. Research well about the company and its background and be completely sure when you do it.

 

An economic slowdown is a part of business cycle . Although we need to accept this, we must also be skillful with our money. 

Let us know in the comments below if this post was useful to you. You may also let us know about how you are going to deal with upcoming economic slowdown period.

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