3 things the smartest investors do during a recession

Mall Americans are bracing for a downturn as fears of a recession persist. The US economy sank for a second consecutive quarter, which is often referred to as a “technical recession”. However, we are not yet officially in a recession.

Economists at the National Bureau of Economic Research (NBER) are responsible for making the call, and until they make a decision, it’s not an official recession. That doesn’t mean investors aren’t worried, though. If we’re heading into a recession, there are a few smart steps you can take to protect your money.

1. Try not to panic

This is often easier said than done, but do your best not to panic if the country enters a recession. Economic downturns can be overwhelming and nerve-wracking, but worrying too much can sometimes lead to making less than ideal decisions with your money.

Instead, try to focus on the things you box control and do your best to maintain a long-term perspective. The country has seen dozens of stock market crashes and recessions in the past, and we have recovered from each one. Whatever happens, it is extremely likely that the economy will eventually rebound.

^ SPX data by YCharts.

One of the best things you can do, therefore, is to stay focused on the future and avoid making panic-driven decisions. As John Bogle, founder of investment firm Vanguard and inventor of the index fund, said, “Time is your friend. Impulse is your enemy.

2. Check your emergency fund

When the economy is precarious, a strong emergency fund is essential. Recessions and stock market declines often go hand in hand, and job losses are especially common during tough economic times.

If you lose your job or face an unexpected expense, taking your money out of the stock market can be a risky move. When stock prices are lower, you may end up selling your investments at a steep discount, locking in your losses. However, when you have at least three to six months of savings in an emergency fund, you can leave your investments alone and rest easy knowing your finances are protected.

3. Keep investing, if you can

Investing in the stock market during a downturn can sometimes feel like a waste of money. After all, if your portfolio is rapidly losing value, it may not be wise to invest even more.

That said, downturns can be one of the best opportunities to invest heavily because you’re getting a good deal. The lower the stock prices, the cheaper these investments become. If you keep investing when the market is down, you can stock up on high-quality stocks for a fraction of the price.

Then, when the market inevitably recovers, you can see big gains. If you’re looking to create the most wealth possible in the least amount of time, investing during market downturns is one of the most effective strategies. As billionaire-investor Warren Buffet once said, “Opportunities seldom come. When it rains gold, pull out the bucket, not the thimble.”

Whether or not we’re heading into a recession is uncertain at this time, but that doesn’t mean you can’t prepare. By following these three steps, you can protect your finances and sleep easier no matter what the future holds.

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