Economic downturns can be challenging, and many Americans worry that a recession is on the horizon. While no one knows for sure when or when a recession will occur, it’s starting to look more likely. In fact, according to research by investment firm TD Securities, the probability of the US going into recession within the next year is more than 50%.
Again, it’s unclear what exactly will happen in the economy. But if we do face a recession, there are a few steps you can take to keep your investments as safe as possible.
1. Avoid selling your investments
It can be tempting to pull your money out of the market when the economy is in a slump. Recessions and market dips often go hand in hand, and if we experience a recession, there is a possibility that stock prices will fall further.
However, now is one of the worst times sell your investments. Since stock prices have already dropped significantly, if you withdraw your money now, you can sell your stocks at a discount and lock in losses.
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While it may sound counterintuitive, holding your investments is a safer option regardless of what the market is doing. You’re not technically losing any money unless you sell, so you can weather the storm by holding onto your stocks until the market eventually rebounds.
2. Strengthen your emergency fund
It’s especially important to have a healthy emergency fund, as dips are one of the worst times to withdraw your money from the stock market. Ideally, this means having enough savings to cover at least three to six months of living expenses.
If you don’t have emergency funds and you lose your job or face an unexpected expense, you may have no choice but to consider your investments. And if you sell your shares when prices drop, you may end up losing money.
3. Invest only in solid, long-term stocks
Market dips and recessions can be a wise opportunity to invest more, as prices are significantly lower than they were a few months ago. By investing now, you can install discount quality stocksthen reap the rewards when the market recovers and stock prices rise.
The key, though, is to invest in the right places. Some stocks will not survive a recession, but healthy companies with solid fundamental business fundamentals are the most likely.
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Keep in mind that even the strongest stocks will likely take a hit in the short term. But over time, they’re more likely to see consistent growth. By investing in these types of stocks and holding your investments for at least a few years, you give your portfolio the best chance of surviving a setback.
While it’s unclear whether a recession is imminent, it’s wise to start preparing just in case. By building a healthy emergency fund, investing in quality stocks, and maintaining a long-term outlook, you can rest easier knowing you’re keeping your money as safe as possible.
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