Who doesn’t love a good Halloween pun this time of year? In all seriousness, the US has been bracing for a recession for a while. We see the elevated interest rates and stricter lending standards impacting every aspect of our finances.
That said, we know it’s not the time to abandon your investment strategy.
The grim outlook isn’t as scary as once predicted; we’re seeing some economic expansion compared to earlier this year in both consumer and business spending.
So, as you look for ways to invest the bonus we’re all hoping you get at the end of the year - keep a few of these things in mind:
Buffer assets like bonds, cash-equivalents and high yield accounts (like interest earned on life insurance cash value, for example) often outperform stocks during recessions. But here's the catch: don’t sell your stocks and buy these safer options when things get bad. Use that bonus to pick up a buffer asset and let it work alongside your stock portfolio.
What does that mean exactly? Well, attempting to time the market by selling stocks before a recession and buying them back can often lead to losses. A safer option for investing during a recession is to leave your stocks alone when the market is down. They will rebound, and selling at a loss is never what we want!
We know recessions are temporary. Typically lasting less than a year, they pave the way for the early cycle, when markets historically make significant gains.
So, instead of being spooked into stagnation, now is the time to explore other options and set practical expectations.
Review your portfolio with your advisor and make measured adjustments and/or additions.
A buffer asset acts as a shield, softening the blows of market volatility. Determining which one(s) are right for you and your long-term goals is key.
Conclusion
When recession-like patterns emerge, we think “buy low, sell high”. Disposable income can be used to buy new assets at a reduced cost. You can bolster your financial stance in many ways by investing during a recession.