With a recession looming (and some saying its already here), here are a few things to consider as you prepare your investment strategy for a recession:
- Don't panic sell
With the stock market taking a beating, it is natural for people to begin selling off stock. This is the worst thing you can do. If a recession is on the horizon, then the market will most likely drop further. If you sell now, then you lock in your loss. Wait it out.
- Consider a 401(k) loan
If you have the 401(k) option to borrow money from your investment, then now might be a good time to take advantage. If you anticipate losing your job, then having cash available can help you pay your bills until you find another job.
- Stay diversified
During a recession, all shares of asset classes tend to drop. Your diversified portfolio, however, tends to drop less than sectors or individual assets. If one of your holdings takes a hit, then other holdings will likely pick up the slack.
- Keep your job
If you lose your job, then unemployment benefits can help you out until you find a new job. For many people, this is the most stressful time. Having some financial security during this time can help.
recession are never fun times. However, if you know what is coming, then you can plan accordingly.
- Consider a Roth IRA
Roth IRA are retirement accounts. You pay taxes up front, so you don't have to pay taxes when you withdraw the money. Those in higher tax brackets might benefit the most.
- Keep that emergency fund full
An emergency fund can help you out when times get tough. If you keep the emergency fund full (preferably six months of expenses), then you will have some money available if something bad happens.
- Pay off debt
When times get tough, its easy for your credit card debt to skyrocket. If you have debt, then focus on paying it off.
- Be cautious
During a recession, it can be easy to be overly-optimistic. Don't make big purchases during a recession. Wait until things improve or at least stabilize.
- Be frugal
