Lifestyle

How to Get Ahead of a Potential Market Recession

Buying the right stock at the right time can take a great deal of study and no small amount of luck. In addition, recessions come with regularity and every consumer needs to find a way to both live within their means and invest for their future. Determining where to put your money as recession looms is critical.

Invest in the Basics

Current investment advisors recommend investing in companies that provide the basics. While anecdotal evidence suggests that rv sales drop before a recession, everyone needs to buy toilet paper and laundry soap. Experts recommend that individual stock purchases of retailers like Dollar General offer a good buffer against recessional dip.

Dollar Cost Averaging

If you have a 401(k) plan, you’re already buying into dollar cost averaging. Purchasing mutual funds means that you commit to buying shares of the fund. If the fund is selling for $5.00, a $20.00 purchase means you own 4 shares of the fund. If the fund drops to $4.00 a share, you now own 5 shares. As the fund value comes back, you build wealth. It’s important to note that dollar cost averaging works well for those who have the time to wait for a fund to come back. If you’re within 5 years of retirement, dollar cost averaging may not be the right tool for you.

Buy Into Dividends

There are companies that consistently pay dividends. These companies are generally quite stable and have consistent cash flow. While start-ups can pay bigger benefits when the market is on the upswing, a mutual fund focused on companies that consistently pays dividends can protect your investment balance from completely tanking when recession hits. Your monies will suffer less of a dip and will come back more quickly in these funds.

When the stock market is robust, it’s tempting to chase the latest high riser. Unfortunately, once a stock starts to gain attention, you may be too late and wind up paying too much for the stock. Unless you really have the time to focus on stock patterns, mutual funds and exchange traded funds or ETFs may be the best place to put your money. If you want to gamble a bit more and you have a 401(k) plan, consider putting your money into more stable vehicles and the employer match into more volatile investments. Over time, your funds will grow with fewer bumps.

Leave a Reply