Many Americans are preparing for a recession, as worries about one persist. The United States economy shrank for a second time in the third quarter, which is known as a “technical recession.” However, we don’t yet qualify for that status.
Until the National Bureau of Economic Research (NBER) economists reach a conclusion, this isn’t an official recession. That doesn’t imply that investors aren’t concerned. If we’re moving into a recession, there are a few things you can do to protect your money.
1. Try not to panic
This is often more difficult said than done, but if the nation experiences a recession, don’t be too concerned. Economic downturns can be disheartening and frightening; however, worry can sometimes cause you to make less-than-optimal financial decisions.
Instead, concentrate on the things you can influence, and maintain a long-term perspective. In the past, we’ve been through numerous market crashes and recessions, yet we’ve always recovered. It’s inevitable that the economy will rebound eventually, no matter what happens.
The best thing you can do, then, is to concentrate on the future and avoid making panic-driven decisions. In the words of investing guru John Bogle, “Time is your friend. Impulse is your enemy.”
2. Double-check your emergency fund
A substantial financial cushion is necessary when the economy is unstable. Recessions and stock market panics frequently occur together, and job losses are particularly prevalent during difficult economic conditions.
If you lose your job or have an unanticipated expense, withdrawing funds from the stock market might be a hazardous move. You may end up selling your assets at a significant discount if stock prices are lower, guaranteeing further losses. When you have three to six months’ worth of money in an emergency fund tucked away, you can leave your investments alone and sleep better knowing that your finances are secure.
3. Keep investing, if you can
Investing in the stock market may sometimes seem like throwing your money away during a downturn. After all, if your portfolio is rapidly depreciating, it may not be worth investing even more.
That said, downturns may be one of the greatest opportunities to invest heavily because stock prices are discounting. The lower stock prices go, the more affordable those investments become. If you keep investing when the market is down, you can get high-quality equities for a fraction of their original cost.
Finally, when the market eventually rebounds, you may see significant profits. If you want to amass as much money as possible in the shortest amount of time, putting your funds to work during market dips is one of the greatest methods. As billionaire investor Warren Buffett noted, “Opportunities are few and far between. When it rains gold, don’t put out the thimble; instead, fill up the bucket.”
It’s uncertain whether or not the United States is on track for a recession, but you can prepare regardless. You may sleep better and protect your money even if the future appears bleak by following these three measures.