{"id":14476,"date":"2021-05-01T09:04:02","date_gmt":"2021-05-01T15:04:02","guid":{"rendered":"https:\/\/www.lexingtonlaw.com\/blog\/?p=14476"},"modified":"2024-05-06T13:13:40","modified_gmt":"2024-05-06T19:13:40","slug":"investing-during-a-recession","status":"publish","type":"post","link":"https:\/\/www.lexingtonlaw.com\/blog\/finance\/investing-during-a-recession.html","title":{"rendered":"Investing during a recession"},"content":{"rendered":"\n
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The information provided on this website does not, and is not intended to, act<\/em> as legal, financial or credit advice.<\/em> See Lexington Law\u2019s editorial disclosure for more information.<\/em><\/a><\/p>\n\n\n\n

When things get lean, it\u2019s natural to want to tighten your belt and save money wherever possible. But should you stop investing completely? It\u2019s an entirely personal decision. Get some facts and insights about investing during a recession below to help you determine what will work for you.<\/p>\n\n\n\n

Is It a Good Idea to Invest During a Recession?<\/h2>\n\n\n\n

It depends on a few factors, including what you\u2019re referring to when you say \u201cinvesting.\u201d If you\u2019re talking about funding a 401(k), you probably want to continue doing so unless you would be unable to pay your necessary bills and living expenses.<\/p>\n\n\n\n

But if investing means the stock market<\/a> or other similar options, you should seriously consider your financial situation. If you already have emergency savings and have disposable income to risk, investing can be an option. This is especially true if you won\u2019t be touching your portfolio for a while, so you have time to weather the ups and downs associated with a recession economy.<\/p>\n\n\n\n

But you do want to be aware of the bear market trap so you don\u2019t fall into it. Bear traps occur when a lot of investors have bought into certain stock. This increases the selling pressure, which just means that there are buyers for the stock but not a lot of stock to be had.<\/p>\n\n\n\n

Institutions that want the stock to move higher may push prices lower via short sales or other strategies, making it appear as if the prices are falling. That can scare people into selling the stock. In the long run, however, the stock maintains its price or increases in value, so selling early can mean losing out on future gains. This is just one reason you might want to work with a professional advisor when investing.<\/p>\n\n\n\n

7 Tips for Investing During a Recession<\/h2>\n\n\n\n

1. Be Patient and Think Long-Term<\/h3>\n\n\n\n

Buying and selling stocks rapidly to turn huge profits is mostly an event seen in movies and television. And while it\u2019s not impossible for pros to luck into a big win, this is not typically how individuals should look at investing<\/a>. It may take time for your investments to pay off, especially if the economy as a whole is struggling, so it\u2019s important to avoid being guided by emotions and rely on logic and sound financial advice.<\/p>\n\n\n\n

2. Commit to a Personal Investment Plan<\/h3>\n\n\n\n

A personal investment plan is a written document that includes your financial goals and what types of limitations you might have, such as what you can afford to spend on investing. Creating such a document ensures you have a logical, well-thought-out guide to turn to when things do get tricky. If you feel tempted by a seemingly perfect investment, for example, your plan can remind you what you can realistically put into this new investment.<\/p>\n\n\n\n

3. Use the Dollar-Cost Averaging Strategy<\/h3>\n\n\n\n

Dollar-cost averaging is a strategy used by many investors, including some professionals. Its goal is to potentially reduce the volatile nature of a single purchase. The DCA strategy works like this:<\/p>\n\n\n\n