Do you need cash in a recession?
During a recession, an emergency fund can be a financial lifesaver. Experts generally recommend that an emergency fund contain enough money to cover three to six months of living expenses.
- Seek Out Core Sector Stocks. During a recession, you might be inclined to give up on stocks, but experts say it's best not to flee equities completely. ...
- Focus on Reliable Dividend Stocks. ...
- Consider Buying Real Estate. ...
- Purchase Precious Metal Investments. ...
- “Invest” in Yourself.
Don't go overboard when saving for a recession
Instead, prepare for them like any other unexpected expense like a medical emergency or a period of unemployment. Having three to six months of living expenses set aside should be enough for most people to get through tough times with their finances unscathed.
Key takeaways
It's a good idea to keep enough cash at home to cover two months' worth of basic necessities, some experts recommend. A locked, waterproof and fireproof safe can help protect your cash and other valuables from fire, flood or theft.
Taking on new debt in a recession is risky and should be approached with caution. Pay cash if you can, or wait on big new purchases.
During an economic downturn, it's crucial to control your spending. Try to avoid taking on new debt you don't need, like a house or car. Look critically at smaller expenses, too — there's no reason to keep paying for things you don't use.
Generally, money kept in a bank account is safe—even during a recession. However, depending on factors such as your balance amount and the type of account, your money might not be completely protected. For instance, Silicon Valley Bank likely had billions of dollars in uninsured deposits at the time of its collapse.
Recessions can impact your savings in many different ways. Lower interest rates, stock market volatility, and potential job loss can drain your savings. Diversifying your investments, building an emergency fund, and opening a high-yield savings account can help protect your savings.
- Defensive sector stocks and funds.
- Dividend-paying large-cap stocks.
- Government bonds and top-rated corporate bonds.
- Treasury bonds.
- Gold.
- Real estate.
- Cash and cash equivalents.
Generally, the industries known to fare better during recessions are those that supply the population with essentials we cannot live without that. They include utilities, health care, consumer staples, and, in some pundits' opinions, maybe even technology.
Should I put all my money in cash now?
As a rule of thumb, financial advisors generally recommend holding three- to six-months' worth of living expenses in a cash account that's easy to access. By keeping your emergency fund in cash, you avoid the risk of having to sell other assets you own, such as stocks, at a potential loss when something comes up.
Interest rates on cash investments are already falling early in 2024," says Rob Williams, managing director of financial planning at Charles Schwab. "We suggest that investors maintain the cash you need to provide an emergency fund and fund goals or spending that you may need over the next few years.
Because of how precious cash can be during times of financial stress, many have said that cash is king. The phrase means that having liquid funds available can be vital because of the flexibility it provides during a crisis.
If you already have credit card debt, paying it off should become a priority. With credit card interest rates continuing to reach new heights, you don't want to get stuck with credit card debt if a recession hits. It's not only hard on your wallet because of interest charges — it can also hurt your credit score.
To help shield your finances from the impact of a recession, it's best to pay down as much of your credit card debt as you can, beginning now. If you aren't sure how to get started, our credit card payoff calculator can help you come up with a plan.
Here's Who's Pulling Their Money. Total deposits at commercial banks fell by just over $1 trillion from April 2022 to May 2023. People 40 years old and younger are more likely to pull their money, with 38% of them reporting that they moved deposits compared to 23% of those over 40.
Unless your bank has set a withdrawal limit of its own, you are free to take as much out of your bank account as you would like. It is, after all, your money.
If you're worried about banks failing, you can begin looking at safer investments as a place to put your money. Assets like Treasury bonds tend to do quite well during recessions for exactly this reason. They may not give a significant return, but you know you'll get your money back.
What are some examples of businesses that thrive in recession? Due to the elasticity of demand, recession-proof industries are usually in essential services, like health care, senior services, grocery stores, and maintenance, such as plumbing and electrical.
Your money will be secured in a bank account during a recession, but only if the bank is FDIC-insured. And if you bank with a credit union, your money is secured if the credit union is insured by the National Credit Union Administration (NCUA).
Who gets hurt the most during a recession?
17951), co-authors Hilary Hoynes, Douglas Miller, and Jessamyn Schaller find that the impacts of the Great Recession (December 2007 to June 2009) have been greater for men, for black and Hispanic workers, for young workers, and for less educated workers than for others in the labor market.
Where to put money during a recession. Putting money in savings accounts, money market accounts, and CDs keeps your money safe in an FDIC-insured bank account (or NCUA-insured credit union account). Alternatively, invest in the stock market with a broker.
Several asset classes perform well in inflationary environments. Tangible assets, like real estate and commodities, have historically been seen as inflation hedges. Some specialized securities can maintain a portfolio's buying power, including certain sector stocks, inflation-indexed bonds, and securitized debt.
So, central bankers can make money more or less expensive, but whichever way they pull the lever, it tends to favour the rich. The diamond-encrusted cherry on this deeply unpalatable cake is that not only do the rich get richer in recessions: in doing so, they actually make recessions worse for everyone else.
The government has no regulations on the amount of money you can legally keep in your house or even the amount of money you can legally own overall. Just, the problem with keeping so much money in one place (likely in the form of cash) — it's very vulnerable to being lost.
