How to Invest During a Recession

Posted by: Sophie H. | Jan 11,2008


As 2008 progresses, the information on this site is going to be more and more about how to deal with a recession and less how to deal with day-to-day economic issues.  As Gene touches on in his post about how to prepare for a recession, all of the old tips we’ve given about spending and saving can be put towards preparing for a recession.  As he says, it just makes these tips more urgent, but the tips are still worthwhile.  

At the same time, does it change anything about how you prepare for retirement.  Gene mentions 401(k) spending being cut down in favor of savings during a recession.  What about other types of investments?  I’ve spent a long time here writing about the best way to save and invest before retirement.  Does the recession change anything?  

One thing that shouldn’t change is diversification.  You shouldn’t be weighted in any one direction.  Some investment planners recommend investing in bonds during a recession, specifically corporate bonds compared to U.S. Treasuries.  Corporate bonds are a less risky investment than stocks with a better investment return than a U.S. Treasury, to the tune of 1.5% higher.  

Basically what it comes down to is that during a recession it’s important to play close to the vest and don’t take too many big risks.  In part this is what fuels a recession – there’s not as much money changing hands.  But on a personal level, I’d recommend going with lower-risk investments during a recession.  If you do invest in high-risk stocks, you need to diversify with a lower-risk fall-back plan like investment-grade corporate bonds.  

What you do depends a lot on where you are in retirement.  Are you ten years out, or are you ten years in?  This will predicate where you put your investment money.  Certain stocks won’t bear fruit potentially within your lifetime, so this is one thing to consider.  In addition to this, you should put your money into funds that can be cashed out quickly – like money market accounts or a good-old savings account.  Again: diversification.  In times of recession it’s a smart move to hold to these tried and true methods of savings and investment, rather than make any huge gambles.  

Sponsored Resources Ads by Google