Should I be investing if there’s a recession?

Stick to the plan and prioritize your financial health.?In a recession, it's essential to be even more mindful of your spending, savings, debt, and investments. The right decisions now can set you up for even greater success when the economy turns around.

?We're excited to release?seven pages of resources we've curated to help you take control of your financial future.?We've spent months reviewing dozens of platforms to compile these resources for you. Check them out today!

Why might there be a recession?

Inflation!?Are you tired of hearing the word yet??As we've discussed, the pandemic disrupted everything, and the Federal Reserve jumped in with many stimulus measures. So spending snapped back quickly, but production didn't. Too much demand for too little stuff makes prices rise. Low inflation (~1-2%) is normal, but prices rising by 7-9% in a year is unmanageable.?The economy was overheating.

With the economy overheating,?the Federal Reserve started rolling back its supportive policies and quickly restricting economic activity, making borrowing more expensive and slowing spending.?The housing market?demonstrated all of this for us this year. Low mortgage rates spurred home buying amidst low supply. Home prices soared to record highs. The Fed announced restrictive policies, and mortgage rates doubled. Home buyers disappeared as high rates made homes unaffordable, and now home prices are falling. That's the effect the Fed is now having across the economy.

Now that supply chains have returned to normal, and the Fed's restrictions are slowing the economy, inflation is cooling.?Prices aren't rising as quickly as they were before.?So the Fed is starting to?hint at less restrictive policy.?We might be looking at a light economic slowdown from the post-pandemic boom. However, if inflation sticks around for too much longer, the Fed might need to keep restricting until it pushes us into a deep recession.?So we need to be prepared for anything.

What do I focus on first?

Make sure you understand your spending.?The pandemic threw the global economy out of sync, leading to sporadic abundance and shortages. Prices, on average, may stop rising so quickly, but individual living costs could continue to prove unpredictable. Make sure you use tools that can easily?track, organize, and predict your expenses like these.

Increasing your income is critical?to adapting to rising living expenses. It's an excellent time to ask for a raise. You are a valuable resource, and companies will fight over you. People who switched jobs saw their?wages increase 41% faster?than those who stayed at their job this year. While there are?nearly two available jobs for every unemployed?worker right now, that could change quickly.?Go out and get an offer, then weigh it against the benefits of job security.?Increased income doesn't only come from your job.?Check out the resources?we pulled together for side hustles, cashback, giveaways, and passive income.

Build emergency savings.?Amidst economic uncertainty, we need to be prepared for anything. Ensure you put aside at least 3-6 months of expenses in a safe savings account. Think about how many months you could go without income. The good thing about higher interest rates is higher-earning savings accounts. We found some?fantastic resources to identify high-paying savings?accounts. An?HSA?is a tax-efficient way to save for medical expenses if you have a low-deductible healthcare plan.

Pay down your high-interest debt immediately.?Rising interest rates mean your credit cards are getting more expensive and will take up a more significant portion of your income. That debt is like investing in reverse. It's eating away at your wealth. We tested some?excellent tools to help pay it off, consolidate it, or refinance it.

Improve your credit score.?If you need to take on debt at these high interest rates, perhaps to buy a home or car, you must find other ways to reduce your rate. A high credit score can help do that. It indicates to banks that you're a more responsible, higher-quality borrower. The lower the loan risk, the less banks make you pay. There are free and efficient ways to build credit and improve your score. We?compiled the best?we could find for you.

My finances are healthy; should I still be investing?

The highest priority is ensuring you feel comfortable about your financial health?in the short term before you start thinking about the long term.?A potential recession shouldn't knock you off course?if you're ready to put away money for long-term growth or already doing it.?Trying to time the markets is rarely a successful strategy. Consistency is key.

Don't let your emotions take control.?Pulling money out of the market when your investments are down is one of the worst things you can do to your portfolio. If you invested $10,000 in 2001 in an S&P 500 fund and missed just the best ten days over the past 20 years, you'd have?$28K instead of $62K. Most of the best days happened within two weeks of the worst days.

The best times to invest can often feel like the worst.?Over the past fifty years, the average one-year return of investing at peak consumer confidence was 4%, while investing when consumer confidence was lowest?returned 25% growth.

No one ever knows the right time to invest, so?it's essential to automate long-term investing as much as possible.?Once you figure out how much you can regularly allocate to long-term investments, set up auto-transfers into an investment account that automatically invests it.?Our favorite super app is M1.?You can build a portfolio of anything you want, splitting it up by percentages instead of worrying about the math of trading. Then you can auto-transfer and auto-invest regularly based on your chosen allocation. There are preset portfolios too.

Navigating a changing economic environment can be intimidating. That's why we're focused on making it as simple and easy as possible to understand what's happening daily and make decisions that improve your life.?We'll keep curating the information, education, and resources you need to control your future.?

If you have any questions, we're here.?Text us anytime.

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