Avoiding highly indebted companies, high-yield bonds and speculative investments will be important during a recession to ensure your portfolio is not exposed to unnecessary risk. Instead, it's better to focus on high-quality government securities, investment-grade bonds and companies with sound balance sheets.
Bonds and cash have historically outperformed most stocks during recessions. Selling stocks in favor of bonds and cash before a recession may leave you unprepared if stocks bounce back before the economy does, which has happened historically during many recessions.
Where to put money during a recession. Savings accounts, money market accounts, and CDs are all ways to keep your money at your local bank. Alternatively, you could invest in the stock market with a broker. Let's go over each of these options.
Retail, restaurants, hotels and real estate are some of the businesses often hurt during a recession.
Eventually, most recessions plunder the housing market, which involves real estate agents, mortgage lenders and everything connected to construction, from workers to suppliers.
Higher interest rates that often coincide with the early stages of a recession provide an advantage to savers, while lower interest rates moving out of a recession can benefit homebuyers. Investors may be able to find bargains on assets that have decreased in price during a recession.
Do no withdraw cash. Despite the recent uncertainty, experts don't recommend withdrawing cash from your account. Keeping your money in financial institutions rather than in your home is safer, especially when the amount is insured. "It's not a time to pull your money out of the bank," Silver said.
In addition, during recessions, people with access to cash are in a better position to take advantage of investment opportunities that can significantly improve their finances long-term.
Historically, gold prices have remained stable — or even experienced an upswing — during recessionary periods. According to data from Schroders, a global investment manager, both gold and gold equities have performed well through five of the past seven recessions going back to the early 1970s.
In general, a recession lasts anywhere from six to 18 months. For example, the Great Recession that started in December 2007 lasted 18 months. But the recession prompted by the pandemic in 2020 only lasted two months.
Michael Burry from “The Big Short” took a big bet when he shorted the American housing market. After the housing bubble crashed in 2008, he made $100 million for himself, with investors in his fund making a further $700 million.
When things are looking bleak, consider holding on to your investments. Selling during market lows can be one of the worst things you can do for your portfolio — it locks in losses. When the market evens out down the road, rebalancing may be in order.
Stock prices are lower than they've been in a long time, and it's a smart time to buy the dip and invest at a discount. If we face a recession, the market may fall further. But it will recover eventually. By investing during the low points, you'll be in a perfect position to take advantage of the upswing.
Recessions are periods of widespread economic downturn. Cash, large-cap stocks and gold can be good investments during a recession. Stocks that tend to fluctuate with the economy and cryptocurrencies can be unstable during a recession.
Pro: Cash means liquidity
One of the biggest risks to individuals in a recession is the threat of job loss or unaffordable bills. With a solid cash account behind you, it's easier to navigate uncertainty more confidently knowing that you're financially prepared.
Deposits up to $250,000 in savings accounts and term deposits with Australian banks are protected by the government, so if something were to happen to the bank (which is unlikely), your deposit would be safe. This is part of the Australian Government Guarantee Scheme.
Most financial experts end up suggesting you need a cash stash equal to six months of expenses: If you need $5,000 to survive every month, save $30,000. Personal finance guru Suze Orman advises an eight-month emergency fund because that's about how long it takes the average person to find a job.
Keep Cash to a Minimum
Danielle Miura, CFP, the founder and owner of Spark Financials, suggested, “You should keep enough money on hand to get you a couple of gallons of gas, pay for a delivery tip, or to help in unfortunate events,” or around $100-$200 at a time.
Keeping all of your money at one bank can be convenient and is generally safe. However, if your account balances exceed the deposit limit that's insured by the FDIC, some of your money may not be protected if the bank fails. And if you're a fraud victim, having cash all in one place could compromise more of your money.
Both the employees and firms get hurt by the recession. Employees lose their jobs and are forced to a lower standard of living while the firms undergo abnormal profits.
Recessions reduce opportunities: failed businesses, fewer jobs, and lower wages. Recessions normally don't happen every year, but they're not unusual. The National Bureau of Economic Research has tracked recessions in the U.S. all the way back to 1857.