It?s a tough time for investors across the world. There exist both fears on possible worldwide recession and confusion as regards to identifying the safest asset class.

In the last four years, we saw turbulent changes in asset prices. These swings were followed by sharp changes in the interest or inflation cycles. It is not only the fundamental parameters, but also perceptions that play a crucial role in rewarding or punishing the prices of various asset classes. In this scenario, the best strategy for investors would be to adopt a conservative path.

An investor with an average risk profile should not expose more than 30% to equity asset class, as it would remain the riskiest, but at the same time, highly rewarding asset class. This would include exposure to direct equity, equity MFS and global equities. About 50% of total assets should be in the form of semi-liquid assets, which can be converted into cash in the short term. The balance 20% can be invested in real estate and precious metals like gold.

Within equity asset class, it would be better to bank on domestic equity as India has proved to be a safer place to invest in the longer term. As was the case earlier, this time, too, the source of the problem is Europe and the US. Once again, our economy would remain the second fastest growing economy in the world. To be on the safer side, the investors should avoid sectors (like IT and metals) which have high degree of global linkages, at least till July-September 2011 quarterly results are out.

Rather, focus on sectors (like pharma, FMCG and other domestic themes), which are heavily dependent on domestic demand and individual stocks which are the least leveraged and also cash-rich.

Investors can park about 70% of equity portfolio in large-cap stocks and the balance in the value and high dividend yielding stocks.

Investors should invest 50% of wealth in fixed-income securities (like bank deposits, FMPs, highly rated corporate bonds), which can be converted into cash at short notice. We firmly believe that the interest rate cycle is peaking out ? unlike the past double-digit inflation scenario, this time we do not face any structural issues like war, drought or an oil crisis.

However, there is a remote possibility of the western world slipping into severe recession. If that happens, cash would become the best asset class as its real value would go up substantially. So, it would be advisable to park in highly liquid and safe fixed-income securities till some clarity emerges. The recent run-up in gold prices has to do with the fear which is haunting the western world.

However, if actually, a severe recession grips the western world, the prices of both precious metals and real estate are likely to fall significantly going forward. Gold is not 100% recession proof ?it is not safe haven always. When the western world was hit by long recessionary phase during 1981-2000, gold prices had fallen as mush as 39%. Hence, the best strategy would be to start investing in gold when it starts falling to around R26,000 per 10 gm for .999 purity and also into real estate (as an investment option) after two or three months.

The writer is group CIO, Centrum Wealth