How To Invest In A Recession
Many friends and family members have been asking me lately how to invest in a recession, so I've put together these thoughts and recommendations:
The market's long term direction is UP. Populations grow over time and people always have to eat, wear clothes, have a place to live, and so on. Demand on goods and services increases as time marches on and over the long term the economy expands.
Patience is not only a virtue, it's a requirement. Housing recessions typically work themselves out after about 5 years, but who knows when this one will end. If you need to re-allocate your existing investments in order to reduce your exposure to volatile sectors of the market and obtain the correct balance for your age and the years left until retirement, do it. Then be patient while the market works itself out.
Max out your 401(k) contributions so you buy more stock as the market declines. Come to think of it, you should always max out your 401(k), but if you aren't contributing the maximum you can right now, now is a good time to increase it. In any case, invest in a good target date retirement fund if you have such a choice available to you. If not you can always allocate a percentage to stocks according to your age and time until retirement--a good rule of thumb is take 100 minus your age and allocate this percent to stocks, 10% to cash or money market funds and the rest to bond funds. Most financial advisors these days recommend you put 10% of your portfolio into international funds. I'm about 40 so here's how it breaks down for me:
100 - 40 = 60% stocks (50% S&P 500 + 10% International)
30% bond funds
10% cash or money market
Diversify, diversify, diversify. Put the majority of the money you invest in stocks into index funds (such as an S&P 500 index fund) or Exchange Traded Funds (ETFs), which are traded just like a stock but represent a basket of stocks just like a mutual fund. If you absolutely must buy individual stocks, put no more than 5% into each one.
The market won't stay down. People who buy stocks all throughout this downturn will make out like bandits over the following years. While it's true that stock markets go down faster than they go up, they simply go down less often. It's the shock of watching the market drop that's emotionally difficult for us, but it's the nature of the beast.
Focus on other activities besides babysitting your portfolio. It's spring and there are much more interesting things to do right now. Get out and enjoy the weather, plant something in your yard if you have one, visit friends and family, take walks. Life is short so enjoy today while you have it. Is worrying about the market or the economy the best thing you could be doing right now with your time? Not likely.
And my final thought...remember that dot com bubble back in 2000? The market WILL come back, higher than ever. Thing is, we just don't know when.
Do you have any thoughts on how to invest in a recession? Sound off and let me know what you think!
The market's long term direction is UP. Populations grow over time and people always have to eat, wear clothes, have a place to live, and so on. Demand on goods and services increases as time marches on and over the long term the economy expands.
Patience is not only a virtue, it's a requirement. Housing recessions typically work themselves out after about 5 years, but who knows when this one will end. If you need to re-allocate your existing investments in order to reduce your exposure to volatile sectors of the market and obtain the correct balance for your age and the years left until retirement, do it. Then be patient while the market works itself out.
Max out your 401(k) contributions so you buy more stock as the market declines. Come to think of it, you should always max out your 401(k), but if you aren't contributing the maximum you can right now, now is a good time to increase it. In any case, invest in a good target date retirement fund if you have such a choice available to you. If not you can always allocate a percentage to stocks according to your age and time until retirement--a good rule of thumb is take 100 minus your age and allocate this percent to stocks, 10% to cash or money market funds and the rest to bond funds. Most financial advisors these days recommend you put 10% of your portfolio into international funds. I'm about 40 so here's how it breaks down for me:
100 - 40 = 60% stocks (50% S&P 500 + 10% International)
30% bond funds
10% cash or money market
Diversify, diversify, diversify. Put the majority of the money you invest in stocks into index funds (such as an S&P 500 index fund) or Exchange Traded Funds (ETFs), which are traded just like a stock but represent a basket of stocks just like a mutual fund. If you absolutely must buy individual stocks, put no more than 5% into each one.
The market won't stay down. People who buy stocks all throughout this downturn will make out like bandits over the following years. While it's true that stock markets go down faster than they go up, they simply go down less often. It's the shock of watching the market drop that's emotionally difficult for us, but it's the nature of the beast.
Focus on other activities besides babysitting your portfolio. It's spring and there are much more interesting things to do right now. Get out and enjoy the weather, plant something in your yard if you have one, visit friends and family, take walks. Life is short so enjoy today while you have it. Is worrying about the market or the economy the best thing you could be doing right now with your time? Not likely.
And my final thought...remember that dot com bubble back in 2000? The market WILL come back, higher than ever. Thing is, we just don't know when.
Do you have any thoughts on how to invest in a recession? Sound off and let me know what you think!
Labels: How-To-Invest-In-A-Recession
posted by Mark Minks at
8:24 PM
0 Comments:
Post a Comment
Subscribe to Post Comments [Atom]
<< Home