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

FAQs

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

Where should you put cash in a recession? Consider putting money you might need tomorrow in a savings or money market account. For longer-term investments, you can put cash in certificates of deposit (CDs) or the stock market.

Where should you put cash in a recession? Consider putting money you might need tomorrow in a savings or money market account. For longer-term investments, you can put cash in certificates of deposit (CDs) or the stock market.

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.

You can keep money in a bank account during a recession and it will be safe through FDIC and NCUA deposit insurance. Up to $250,000 is secure in individual bank accounts and $500,000 is safe in joint bank accounts.

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.

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.

The short answer is no. Banks cannot take your money without your permission, at least not legally. The Federal Deposit Insurance Corporation (FDIC) insures deposits up to $250,000 per account holder, per bank. If the bank fails, you will return your money to the insured limit.

In the context of a recession, “cash” typically refers to physical currency as well as liquidity in the form of savings and money-market accounts at your bank. These types of accounts help you avoid the stock market's inevitable ebb and flow, and ride out an economic downturn.

How to profit from a recession? ›

What businesses are profitable in a recession? Many investors turn to stocks in companies that sell consumer staples like health care, food and beverages, and personal hygiene products. These businesses typically remain profitable during recessions and their share prices tend to better resist stock market sell-offs.

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).

Having more saved beyond the three to six months' worth of living expenses is also a good idea, especially during recessions. It can provide an additional cushion during this time. Try aiming for between nine and 12 months of living expenses, if possible.

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.

During challenging financial times, cash and liquidity is king. Having easy access to cash during a recession can help you avoid going into serious debt.

Companies that cater to low-cost spending, such as dollar stores or DIY home improvement stores, can actually retain a positive outlook. For investors, ETFs that cover recession-proof sectors may offer attractive returns and diversify your holdings at the same time.

Finance Experts All Say the Same Thing

They all said the same thing: You need three to six months' worth of living expenses in an easily accessible savings account.

During recessions, one of the primary culprits responsible for money vanishing into thin air is the collapse of banks. As financial institutions crumble under the weight of bad loans and dwindling assets, they often go belly up, taking the money entrusted to them along for the ride.