Seek Out Core Sector Stocks
If you want to insulate yourself during a recession partly with stocks, consider investing in the healthcare, utilities and consumer goods sectors. People are still going to spend money on medical care, household items, electricity and food, regardless of the state of the economy.
Managing retirement savings in a downturn
The stock market may go down quite a bit during a recession. If you have money in a 401(k) or other retirement accounts, the falling stock market could lower your account's value. You may also see your house and other investments lose value.
By diversifying your investments, building up an emergency fund and delaying Social Security benefits, you can position your hard-earned savings to weather any kind of market downturn.
A bank account is typically the safest place for your cash, even during an economic downturn... Even if you still have a paycheck coming in during the coronavirus situation, your financial future might seem uncertain -- and you might be feeling the need to stock up on cash, in addition to toilet paper and canned goods.
What Are the Biggest Risks to Avoid During a Recession? Many types of financial risks are heightened in a recession. This means that you're better off avoiding some risks that you might take in better economic times—such as co-signing a loan, taking out an adjustable-rate mortgage (ARM), or taking on new debt.
A recession can impact your retirement in several ways. It can reduce the value of your retirement savings and investments as the stock market may decrease and interest rates may drop, reducing the returns on your fixed-income investments.
Generally, single individuals or families with a single income should save at least six months of expenses, experts say. But higher levels of cash reserves could offer more flexibility when faced with a job loss or economic downturn.
Treasuries are safe investments because they are backed by the “full faith and credit” of the US federal government. The US government has never defaulted on a debt obligation. One special category of treasury securities is Treasury Inflation-Protected Securities (TIPS). TIPS interest rates are indexed to inflation.
Banking regulation has changed over the last 100 years to provide more protection to consumers. You can keep money in a bank account during a recession and it will be safe through FDIC and NCUA deposit insurance. Up to $250,000 is secure in individual bank accounts and $500,000 is safe in joint bank accounts.
Build a cash reserve
One of the best defenses against a recession is having a healthy cash reserve. Having cash on hand allows you to ride out market volatility without being forced to sell investments when they're down. It's essentially a buffer that protects your long-term investments from short-term financial needs.
In a recession, it's smart to preserve your capital by investing in safer assets, such as bonds, particularly government bonds, which can perform well during economic downturns.
Treasurys, says Collins, are similar to government and corporate bonds, as they are backed by the full faith and credit of the U.S. government. They are typically seen as safe investments during a recession. "In times of market volatility, investors may flock toward Treasury bonds, seeking stability," he says.
“The demand for travel and hospitality services typically declines as consumers cut back on discretionary spending,” Sarib Rehman, CEO of Flipcost, said. “To attract customers, airlines, hotels and travel agencies often lower their prices and offer more promotions.”
Benefits of money market funds
There are a few reasons why you might consider investing a portion of your retirement savings in an MMF, including to help: Diversify your account—Having a mix of investments can help you weather the ups and downs of the financial markets and help keep your retirement goals on track.
Rule of thumb: "Save 10% to 15% of your income for retirement." The detail most people miss here is that a 10% to 15% savings rate—which includes any match from your employer—makes sense only if you start saving in your mid-20s or early 30s.
Having a diversified 401(k) of mutual funds or exchange-traded funds (ETFs) that invest in stocks, bonds and even cash can help protect your retirement savings in the event of an economic downturn. How much you choose to allocate to different investments depends in part on how close you are to retirement.
Approaching Retirement
A recession could cost them their job. If a job is lost, a senior may be inclined to begin taking Social Security benefits early, lowering the amount they can receive. Declining house prices could impact the collateral value of a house. Increases in debt could eat into retirement savings.
17951), co-authors Hilary Hoynes, Douglas Miller, and Jessamyn Schaller find that the impacts of the Great Recession (December 2007 to June 2009) have been greater for men, for black and Hispanic workers, for young workers, and for less educated workers than for others in the labor market.
At a minimum, aim to have three months' worth of household expenses held in a checking or savings account. If you're the sole earner in your household or you work in an industry that's experiencing layoffs, make sure you're stashing away at least six months' worth of expenses.
So, the first thing you should do to make your portfolio more recession-resistant is shore up your cash reserves. Otherwise, you may be forced to sell stocks during a market decline, thereby locking in losses and undercutting your portfolio's capacity to recover.
How Does the FDIC Protect Your Money in the Bank? In the unlikely event that your bank fails, the FDIC deposit insurance will cover the balance of your account, dollar-for-dollar, up to the insurance limit, including your deposits and any accrued interest through the date of your bank's closing.
Try not to panic about the scary headlines and remember that staying invested is almost always the best response. Historically speaking, investors who hold on to their investments through recessions see their portfolios completely recover, and individuals who don't invest in the market at all lose out.