An economic downturn can have a devastating effect on your finances and life in general. That is why you need to be prepared for rainy days. American Hope Resources has conducted an interview to address the topic.
With the answers below, you have everything you need to know to keep your head above the waters of recession.
WHAT IS AN ECONOMIC DOWNTURN?
An economic downturn or recession is a significant continuous and pervasive decline in a country’s economic activities.
WHAT HAPPENS DURING A RECESSION?
A recession is deemed to happen when a country has a steady decline in its economic output for more than two or more consecutive quarters of the financial year.
A slow economy characterizes the economic downturn. Businesses produce less, and consumers’ ability to purchase is limited. Several people get laid off, and businesses close down or make fewer sales. The actual economy struggles, and the country experiencing the recession has a decreased overall economic output.
HOW CAN YOU PREPARE YOUR FINANCES FOR AN ECONOMIC DOWNTURN?
First, you should rebalance your portfolio. This means moving some of the money that investors may shift to bonds back to stocks.
In the face of an upcoming recession, it should become evident that you need to cut off costs and review subscriptions and bank statements. Cost-cutting apps such as TrueBill or Trim can do this for you.
You must save enough to last at least six months or more to prepare for a recession. You should also ensure that your money isn’t in an ordinary savings account but rather one that yields interest, no matter how small. You must ensure that it is not a locked account so that you can assess your money when you need it.
Lastly, recessions are usually characterized by an increase in unemployment. The best way to avoid being unemployed during the time is to add more value to yourself. That will ensure that you can take up other jobs if you lose your current one during the recession.
CAN YOU TAKE ADVANTAGE OF AN ECONOMIC DOWNTURN?
Yes, you can! The first thing to do when you get wind of a possible recession is to stay calm. The market will inevitably bounce back.
So, don’t go ahead to sell off your investments.
You can make use of the dollar-cost average when share prices decline. You can also buy into dividends or invest in consumer staples (essential commodities).
You should also know that low market prices mean you can buy more shares. When the prices go up, you will see much greater growth. This doesn’t mean you should invest indiscriminately. Instead, you should consult a financial planner to know which funds to buy.
WHAT SHOULD YOU INVEST IN DURING AN ECONOMIC DOWNTURN?
Funds that track the stock market, such as S&P 500 or FTSE, are a good investment choice during a recession. At American Hope Resources, we recommend investing in industries whose business is not determined by the economy, e.g., healthcare companies.