A Guide to Investing During a Recession

The best time to invest your money is when the market is down. It is easy to find cheap assets since asset prices drop in a down market. It is, therefore, easy to find cheaper bonds, stocks, and mutual funds. In short, stocks are usually on sale and prices drop when the market is down. 

Leverage Dollar-Cost Averaging 

Almost all experts recommend leveraging the dollar-cost average. How do you leverage dollar-cost averaging? You will systematically invest equals amounts of money on a schedule and you will stick to your schedule, regardless of the changes in the market. A 401(k) is an example of dollar-cost averaging. (Acorns investors can enable Round-Ups or Recurring Investments to leverage dollar-cost average). 

It is now the best time to put money into your investment accounts, such as retirement funds. If possible, you need to up your contributions in order to be the last man standing.

If you want to stay committed over the long term, you can lock in your investments with automatic contributions. Luckily, the market is more likely to recover in the future. Therefore, you will take advantage of future dips in the market. And you will never have to stop investing during tough economic times. 

Remember, if you invest your money right now, you will have to wait for the market to recover to see good returns. 

Maintain Sufficient Savings

It is essential to your financial health and investment plan to maintain a healthy savings account. It is easy for many people to avoid investing when the market is down. People use their savings to maintain their lifestyles. According to a CNBC survey, many Americans experienced a pay cut or lost their jobs due to the coronavirus shutdown. Therefore, a lot of people are willing to sell stocks to raise money for basic living expenses. 

The pandemic has made a lot of people understand the importance of having cash reserves. A disaster can strike at any time. A lot of experts recommend keeping 3 to 6 months’ worth of expenses in your emergency fund. You can, therefore, keep the money in your bank account since it is easy to access in your bank account. 

It is even better to save money in a high-yield savings account. Your savings will earn the most interest in a high-yield savings account. 

How to Invest During a Recession 

Invest in Dividend-Producing Stocks 

It is best to put more money into your retirement accounts during a recession. It is, however, more important to look for more investing strategies when the market is down. If you are looking for a guaranteed income, you should invest in dividend-producing stocks. 

Many companies pay periodic earnings to their shareholders on top of their regular earnings. The periodic earnings are known as dividends. If you want to continue earning money during a recession, you should invest in these types of stocks. Siblis Research reported the average dividend payments for U.S. stocks was 1.8% of the original investment at the end of the year 2019. 

Which Sectors Are Expected to Grow? 

It is crucial to invest in the sectors that are expected to grow during and after a recession. It is, however, impossible to know the sectors that are expected to grow. However, some sectors are growing in the current stay-at-home economy, such as telecommuting services, food delivery, e-commerce, and more. In addition, healthcare services, such as telemedicine, are expected to grow. It is best to invest in sectors with high asset values.

Have a Diverse Stock Portfolio  

It is safe to invest in multiple industries. Having a diverse stock portfolio can help mitigate risk. You can, therefore, go with low-cost index funds and exchange-traded funds (ETFs). You should have hundreds of different stocks in your investment portfolio. Diversifying your investment portfolio can balance your risk and maximize gains from your investments according to here. You are more likely to make more money when the market recovers.

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