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Every investor has faced periods of extreme shakiness in markets and stagnation. Whether it is the forex, crypto, or stock market, there are periods of crisis when the future of investments becomes bleak.

With inflation and cost of living rising across the globe, it is predicted that the next recession might be just around the corner. If you are a smart Muslim investor but you are not prepared to invest through the recession, this guide will help you protect your capital and grow it, the halal way.

What is a Recession and how it can affect investments?

A recession is a prolonged and significant decline in the economic growth of a country, region, or entire world. A recession occurs when the GDP of a country declines, unemployment rates rise, and consumers halt spending.

Before a recession occurs, the markets become volatile and market prices of securities swing wildly. Stock prices also begin to fall and any signal (positive or negative) in the market can create distortion.  As the price of securities starts to plummet, investors pull out their investments leading to a larger decline in stock prices.

Businesses struggle to achieve sales targets when consumer spending declines. Hence the profits are reduced in a recession and investors lose confidence. When most investors are taking money out of the stock market, the prices of stocks fall.

According to expert investors, this also creates perfect opportunities for buying stocks. Savvy investors hold onto their money and wait for such opportunities to buy stocks. Similarly, in a recession, certain property classes increase in value, and real estate investors who have invested in these assets profit tremendously from price surges.

Investment Strategy During the Recession

Before you look at the types of investment ventures that can help you grow your wealth, it is essential to define your investment goals. You can adopt an investment strategy to earn higher returns even during the recession, but it might mean taking on an excessive level of risk.

Depending on your risk appetite, you need to set achievable investment goals and strategize accordingly. This means that you must consider your major goal behind investing money.

·  Why did you start investing money?

·  Are you willing to take a higher level of risk? What level of risk can you take?

·  Do you want to preserve your wealth, or do you plan to grow it?

·  If you want to grow your wealth, what is the threshold of risk you are willing to accept?

Tips for Halal Investing During Recessions

There are two approaches that you can follow for investing during the recession according to the level of risk that you are willing to take.

Preserve Capital

The preserve capital approach is for those who want to keep their savings safe but are trying to protect them against inflation. When you are following the capital-preserving approach, you are also trying your best to minimize the risk profile of your investment. For example, someone planning to buy a house with their money in the next one or two years cannot invest the money for a long period. But wants to invest it in a low-risk venture to prevent inflation from nibbling away the value of money.


One of the best hedges against inflation is gold which is also considered to be a low risk investment as the price of gold always stays on par with inflation. When inflation withers away the value of money and prices of goods rise, and the price of gold also increases to match the level of inflation.

Buying gold bullions or coins is a tried and true method to invest in gold but it can be too risky and costly if you put it in a safe deposit locker. An alternative to buying and holding gold physically is purchasing halal gold ETFs.

The market price of these Shariah-compliant securities rises just like stocks in the long run.  They are traded on the stock exchange just like stocks with some fluctuations occurring throughout the day as the number of buyers and sellers increases or decreases.

Real Estate

Investment in real estate, during a recession, is another great way to preserve your capital and earn capital gains. When we say that cost of living and inflation increases each year, we mean that houses and mortgages become more expensive, and rent prices increase.

This makes commercial real estate one of the best investments worldwide. Generally, if you invest in real estate in times of recession, your chances of incurring losses are negligible since you would have bought on the drop. You benefit from an increase in the price of an asset long term (capital gains) and you can also rent out the property depending on the nature of the property. 

There are certain investment schemes (REITs) that allow investors with less capital to invest in real estate as well. Some ETFs can also give you exposure to commercial real estate prices.

Grow Wealth

To grow wealth, you must be willing to take a bit more aggressive approach and wait for a longer period to realize capital gains. Here are some important tips that you can follow to grow your investments.

Don’t Divest in Panic!

When the prices of the stocks begin to plunge lower each day, you are bound to feel an urge to sell. Most investors are willing to accept a loss in the short term, it’s not just you who is panicking.

In the market crash of 2009, around 90% of investors, who had given up hope, sold their securities while the DJIA stood at 6,469.95 points in March 2009. The 10% who did not panic and sell their securities witnessed the rise of the market in the years to come. In September 2022, the DJIA reached 32,381.34 points after hitting an all-time high of 36,799.65 in January 2022.

Even though rebalancing your portfolio looks like your last resort. Don’t give up too quickly. 

Buy the Dip

The slow GDP growth, high unemployment rate, and inflation in an economy are some of the factors that indicate stagnation. This is the point when prices of securities tend to drop creating potentially a great long term investment opportunity for building wealth.

If you had been waiting for the perfect opportunity to invest your savings in the stock market, this might be the right time. Start searching for undervalued securities based on market cap, revenue, and company outlook. It is essential to choose the right mix of stocks that will offer stable returns over the long term.

Lastly, you cannot time the dip. You would be wondering, what if I buy a certain stock at its lowest? It is impossible to judge when the stock will hit its lowest. When the stock is selling at a price point you are comfortable with based on your research, they jump in, otherwise it might end up being another missed opportunity.

There is no perfect way to predict the market and even experts can make mistakes sometimes. So, even if the markets will take unexpected downturns in the short term, you will be able to benefit in the long term.


Diversification is extremely important to make sure you don’t lose all your money. When investing, don’t put all your eggs in one basket. Even though a certain stock may provide stable returns, and you feel this urge to invest all your savings in purchasing these stocks, don’t!

Consider this, you invest in a stock that will provide stable returns of 6% annually, but what about other opportunities that you are missing out on? Another stock or ETF might provide an annual return of 8%.

Diversifying your portfolio allows you to grow your investments while also managing the risk. When you invest in several low and high-risk ventures, your investment portfolio is less likely to be significantly hit by market changes.

So, instead of investing all your money in the stock of one or a handful of companies in the same sector, consider a combination of investments in stocks of different sectors, ETFs, and mutual funds. 

Short-term Investing Approach

If your goal is to invest for the period of recession only and don’t want to wait for stock prices to go up long after the recession ends, you should consider defensive stocks.

Defensive stocks offer stable returns even when the stock markets are bearish. Large-cap stocks of healthcare, food staples, and energy-producing companies have shown stable profit margins even during times of great financial distress.

As compared to individual stocks, Shariah-compliant ETFs and Sukuk ETFs such as Sukuk income funds can offer portfolio diversification. The Sukuk income fund can give investors exposure to Sukuks issued by companies, money markets, gold, and other market indexes.

The Sukuk funds are basically a halal version of bonds that are usually issued by a company to purchase an asset and are also backed by the company’s assets. A Sukuk ETF is a basket of securities that also includes Sukuk funds of different companies. The Sukuk ETFs are listed on stock exchanges where they are traded just like stocks.


Before you invest your hard-earned money, it is essential you do your research and understand the financial markets that you plan to invest in. Invest only what you are willing to lose. Always keep aside an emergency fund to protect you on a rainy day.  

Recessions are periods of uncertainty and mayhem, but that does not mean there is no hope to preserve or grow wealth for you. In fact, recessions make for some of the best investing opportunities.