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In a recession, how you invest can be just as important as what you invest in. Companies with the financial flexibility to survive a long disruption started to look like excellent long-term investment opportunities, while companies with otherwise good businesses but low liquidity were among the hardest-hit stocks, and some didn't survive.

The best investment strategy in any environment is to find good businesses and hold on to them for as long as they remain good businesses, but this focus on quality is especially important in a recession.Īs an example, during the COVID-19 pandemic and subsequent recession, companies in affected industries that had stronger balance sheets going into the crisis had an advantage over those that didn't. However, we completely understand that many people reading this prefer to invest in individual stocks. Over long periods of time, that's been a pretty solid bet. By purchasing index funds - especially S&P 500 index funds - you're betting on the long-term success of U.S. In the last section, we mentioned index funds, and those can be a great way to invest - recession or not. If you had invested $10,000 in a standard S&P 500 index fund at the worst possible time during the 1990-91 recession, your investment would have grown to more than $150,000 in value today, assuming dividends were reinvested along the way. If you had bought at the highs before the 1990-91 recession, you would have achieved a 9.8% annualized return in the nearly 30 years since.Ĭonsider what this means. Even if you had invested in an S&P 500 index fund at the worst possible moment in 2007 - the market's peak before the financial crisis began - you would have achieved an 8.4% annualized return in the 13 years since. In other words, you are not going to invest at the absolutely perfect time.īut you don't have to. There's no crystal ball that can tell you when the market will bottom. But one thing investors should realize is that trying to time the market is almost always a losing battle. If you invest at the market's lowest point during a recession, you're likely going to do quite well over time. Looking at data from three recent recessions prior to the COVID-19 pandemic - the Great Recession from 2007-2009, the recession in 2001 fueled by the dot-com crash and the 9/11 attacks, and the 1990-91 recession that followed a long economic expansion in the 1980s - you might be surprised at the long-term results, even if investors' timing wasn't perfect. Long-term investors who put money to work during a recession have done pretty well over time. Real-world results of investing in recessions You can always ramp up your investments at a later point in life - once your job is more secure, your earnings are steady, and your mind is more at ease on the whole. Instead, focus on paying your bills and staying physically and mentally healthy. Remember that if you're hurting financially, there's no shame in missing out on opportunities. You should never compromise your near-term financial security for long-term gain. It can be a great idea to invest during a recession - but only if you're in a strong enough financial position to do so and only if you have the right attitude and approach. And, when you panic, you risk making rash decisions, such as unloading poorly performing stocks, that force you to lock in losses. The more you check up on your investments, the more likely you are to panic. But, if you're going to invest during a recession, you simply can't do that. When the economy is in bad shape and there's lots of stock market movement, you may be more inclined to log on to your brokerage account every day and see how your portfolio is doing. You're not going to obsessively check your portfolio.Plan on leaving your money alone for at least seven years. The best way to avoid losses in a recession - and come out ahead - is to take a long-term approach to investing. You may think you're buying at a low, only to see your portfolio value decline a few days later. Investing during a recession isn't for the faint of heart. You're not planning to touch your portfolio for at least seven years.If not, be sure to build a solid emergency fund first.

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If you're there and have extra money at your disposal, you can feel free to invest it. You should always aim to have enough money in the bank to cover three to six months' of living expenses, with the latter end of that range being more ideal. As such, investing during a recession can be a good idea but only under the following circumstances: What's more, lower stock values offer a solid opportunity to invest on the cheap (relatively speaking). In theory, that's bad news for an existing portfolio, yet leaving investments alone means not locking in recession-related losses by selling. During a recession, stock values often decline.

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