5 Ways to Bolster Your Finances in a Recession | Morgan Stanley (2024)

FAQs

5 Ways to Bolster Your Finances in a Recession | Morgan Stanley? ›

What are the worst-performing investments during a recession? Assets that are highly leveraged (including high-yield bonds), cyclical or speculative. Any company that offers “nice to have” but not “have to have” products or services are also vulnerable during a recession.

What are the worst-performing investments during a recession? Assets that are highly leveraged (including high-yield bonds), cyclical or speculative. Any company that offers “nice to have” but not “have to have” products or services are also vulnerable during a recession.

Your money is safe in a bank, even during an economic decline like a recession. Up to $250,000 per depositor, per account ownership category, is protected by the FDIC or NCUA at a federally insured financial institution.

What Are the Biggest Risks to Avoid During a Recession? Many types of financial risks are heightened in a recession. This means that you're better off avoiding some risks that you might take in better economic times—such as co-signing a loan, taking out an adjustable-rate mortgage (ARM), or taking on new debt.

Recession-proof businesses typically have at least one of the following characteristics: Sells essential or mandatory goods, like food, diapers, or hardware supplies. Offers necessary public services, like shipping or toll-road servicing. Provides crucial repairs, like plumbing or electrical repairs.

What should I not buy during a recession? ›

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.

Cash. Cash is an important asset when it comes to a recession. After all, if you do end up in a situation where you need to pull from your assets, it helps to have a dedicated emergency fund to fall back on, especially if you experience a layoff.

Industries affected most include retail, restaurants, travel/tourism, leisure/hospitality, service purveyors, real estate, & manufacturing/warehouse. Despite the severity of any past downturn, markets have always recovered, and in many cases, they have seen a monster rebound.

Build up your emergency fund, pay off your high-interest debt, do what you can to live within your means, diversify your investments, invest for the long term, be honest with yourself about your risk tolerance, and keep an eye on your credit score.

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. Let's go over each of these options.

If you have an emergency fund saved, you're probably ready to prioritize paying off debt during a recession. When it comes to paying down debt during a recession, you want to focus on your highest interest debt first – things like payday loans and credit cards are a good place to start.

Build up your emergency fund, pay off your high-interest debt, do what you can to live within your means, diversify your investments, invest for the long term, be honest with yourself about your risk tolerance, and keep an eye on your credit score.

The general recommendation is to hold between 3 and 6 months of your fixed expenses. However, this amount will depend on how much you need to feel safe. In addition, if the economy goes into recession and prices do not go down, saving will become more and more difficult.

What Are the Biggest Risks to Avoid During a Recession? Many types of financial risks are heightened in a recession. This means that you're better off avoiding some risks that you might take in better economic times—such as co-signing a loan, taking out an adjustable-rate mortgage (ARM), or taking on new debt.

Don't: Take On High-Interest Debt

It's best to avoid racking up high-interest debt during a recession. In fact, the smart move is to slash high-interest debt so you've got more cash on hand. Chances are your highest-interest debt is credit card debt.