The markets are a mess at the moment – from stock market crashes and corrections to crypto market mayhem. Once savvy, budding investors are now left in crisis wondering what to put their money towards and where.

Fear not. In customary IFG fashion, we asked two expert investors – a senior director at a boutique M&A firm that advises on multibillion pound transactions and the Chief Investment Officer of a wealth management business that manages $15bn in assets.

They shared their tips with us to help us invest effectively during this chaotic market period. Let’s get into it.

Back to Basics: What’s the Purpose of Investing?

It’s essential for everyone to reflect back on the purpose of investing to realign their investment strategies. Typically financial advisors will tell you that there are two reasons why you invest:

1. To preserve capital i.e. to preserve what you already have.
2. To grow capital i.e. to increase your wealth.

Knowing these key things frames things nicely when it comes to what outcome we seek from our money.

Tip #1: Timing the dip in a recession

A more accurate description for current economic conditions is a ‘stagflation’ economy; the simultaneous appearance in an economy of slow growth, high unemployment, and rising prices.

At the moment inflation is just high and GDP growth is negative. Other indicators such as consumer spending, company investments and yield curve (a line that plots yields (interest rates) of bonds having equal credit quality but differing maturity dates) are pointing towards a weak economy, but the labour market is strong and others argue GDP hasn’t shrunk much, so whether we’re in a recession or not is being hotly debated.

But don’t let talks of a weakened economy get you down.

Most investors see recessions as opportunities to grow their capital. You see historically the stock market has gone upwards and we’ve all looked at the dips and thought ‘if only I had bought the stock when it was here.’ Well here is your chance. 

Now the question on everyone’s mind is ‘when is the lowest point of the dip and can we time it?’

Short answer, no you can’t.

Long answer, you can’t predict with absolute certainty but there are several indicators that the market has not bottomed out and there is a further downturn expected over the coming 6-18 months.

But how low it will go is difficult to foresee. Since 2008 we haven’t had a single year where global markets were down more than 5-7%, 2008 saw markets drop 36% and until recently we were down around 25%. So who knows where it will go in the rest of the year – but if we are in a recession then the expectation would be that the market hasn’t bottomed out yet.

So when do we jump in? Well there’s multiple approaches:

1. The courageous approach – to jump in when GDP, consumer spending etc. are at their lowest and inflation and interest rates are at their highest. These are the signs of a sunrise right around the corner. 
2. The prudent approach – to wait and risk coming in a bit later just as the markets start trending upwards. You won’t see the same returns as those that buy the dip, but you’ll still benefit from the strong recovery-led returns but have greater downside protection.

Keep a clear eye on when the federal reserve / central banks cut rates as that is a key indicator of economic performance about to trend upwards.

Tip #2: Preserving your wealth

With inflation skyrocketing, it’s really important everyone takes steps to preserve their wealth otherwise cash value is shrinking by the year.

Remember that one asset our parents and grandparents always loved, gold. Gold is a great inflation-proof asset and everyone should hold gold as part of your portfolio.

Now we’re not talking about gold jewelry as you’ll be paying a lot of money towards craftsmanship. Rather, consider buying gold coins, bullion or even sharia-compliant gold ETFs.

For example, if you had bought gold just before Brexit was announced at which gold was at £700 an ounce, today gold is trading at nearly £1500 an ounce.

Another key aspect of preserving your wealth is remembering that just because your stock investments are down 20/30%, technically it’s not a loss until you sell.

So if you still believe in the fundamentals of the company, their product/service and do see them surviving the recession then consider holding the stock for the long term.

Saying all that, don’t forget to hold some cash for yourself and any opportunities you see. Anything can happen in these unstable periods, people lose their jobs, expenses increase etc.

So you want to have a certain amount of cash on hand to deal with any need or opportunity that arises. Investing is great, but self-preservation is key.

Tip #3: How to Grow Your Wealth During a Recession

Naturally we don’t just wish to preserve our wealth, rather we want to actively grow it and there’s a number of ways you can go about it during this recession. 

The Buffet approach. Warren Buffet, a billionaire who needs no introduction, once said “If I was guaranteed a recession next year I’d be buying and selling the same securities.”

This approach requires investors to focus on the deep fundamental value at attractive valuations and to hold on to them for the long term. It’s not as flashy as buying at troughs and selling at peaks for 10-20x –  but it’s safer and more assured. 

The 10-20X approach. Undoubtedly more risky and harder to identify, but they exist for those that work hard to find them. To figure these out, think: which stocks get hit the hardest during a recession and are most favoured during a bull market?

The crypto market as a whole would be one of these asset classes, and in stocks it is usually small cap/high growth and tech stocks. So to get those juicy 10-20X returns, you’ll most likely be looking at the riskier end of the spectrum, i.e. crypto and stocks. The only downside is that if you don’t fundamentally understand what you’re investing in, you could lose it all, so always do your research.

Investment grade sukuk. Companies rated BBB+ are a great way to make money without much risk – though without particularly high returns. The sukuks of the government of Oman or Turkey won’t make crazy 10-20X returns, but there  is relatively low risk and the yields can touch up to 7% per annum.

Individual sukuk may not be readily available to the average investor though – but sukuk funds are. Wahed, for example, offer fixed income portfolios offering a couple sukuk funds. 

Defensive stocks. If you only want to invest for the period of the recession, then consider defensive stocks.

These are stocks that can be relied on to provide consistent returns even during an economic or market downturn. This is because they have stable margins, steady cash flows and good dividends. These typically include healthcare stocks, food staples, utilities etc

In contrast, growth stocks are often hit hardest, the most and the quickest. Examples would include any technology company. MongoDB, Cloudflare, and Crowdstrike are just some examples. 

Commercial real estate. Assets with tenants that are reliable and creditworthy are particularly attractive. One such example was our latest commercial real estate deal with Tesco in Greater Manchester over at Cur8 Capital.

Shops, warehouses or headquarters that are mission-critical and in safe locations are great, lower risk investments with returns of about 5-7% on average.

Again, most investors won’t have the 6 or 7 figures lying around to buy commercial real estate, but through Cur8 Capital they can invest in these deals at lower entry points.

Lastly, always remember the golden rules of investing: only invest what you can afford and always do your research with any investments.

As we slide further and further into this pit of uncertainty, always look at the bright side and try to find the opportunities that comes with all disasters.

It’s easy for us to panic, worry and forget that everything is by the decree of Allah. But just as with every hardship comes ease, with every difficulty comes opportunity. It’s our choice whether we seek it or not.