Will a recession hit in 2023? Many financial experts seem resigned to that eventuality. But if you ask Vivian Tu of Your Rich BFF, she’ll tell you that a recession is already happening.
Now whether we’re in a recession or not is up for debate. But we know the stock market has been on shaky ground this year, and many investors are seeing major losses in their brokerage accounts. As such, you may be inclined to steer clear of investing until things settle down — both in terms of the stock market and economy on a whole.
But Tu says that it still pays to invest during a recession. Here’s why.
It’s all about opportunity
Your first priority during a recession is to make sure your immediate financial needs are covered. That means securing your emergency fund and even adding to it if it could use a lift. (The old, pre-pandemic convention was to save enough to cover three to six months’ worth of essential bills, but now, a six- to nine-month emergency fund may be more appropriate).
But let’s assume your emergency savings are in great shape and you don’t have any high-interest debt you’re trying to pay off, like a balance on a credit card. In that case, it absolutely pays to pump more money into your brokerage account and invest it.
In a recent video, Tu explained that no recession has ever not recovered — and that extends to the stock market. Although it’s seen its share of downturns, it’s managed to recover from every single one. In fact, some of the stock market’s strongest months of performance have come on the heels of a downturn. At the same time, because the stock market is down on a whole right now, you have a prime opportunity to scoop up quality investments at a discount.
Let’s say a given company’s stock was trading at $150 a share a year ago. If you still have reason to believe that company is a good investment, you shouldn’t let the fact that its shares are now only worth $100 stop you from buying them. Quite the contrary — you should absolutely stock up (pun intended) at a time when you’re able to snag a lower share price.
Also, remember that the sooner you invest your money, the more time you give your portfolio to grow. So if you’re in a position where you have money on hand to invest, and you don’t expect to need that money for a good number of years, then it pays to put it to work now.
Don’t get caught up in all that bad news
It can be very disheartening to hear nothing but a perpetual stream of recession warnings and dire economic predictions. But remember, investing is something you’re supposed to do on a long-term basis. So don’t waste mental energy worrying when the market will pick back up or how bad things will get. Instead, put your money to work at a time when stocks are cheaper to acquire, and then plan to hold those investments for many years so they’re able to gain value over time.
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