Afraid of a recession? This is the best way to prepare for it news

Rising inflation, rising interest rates and generally negative consumer sentiment have weighed heavily on today’s economy. As a long-term investor, there’s not much you can do to change broad market indicators, but there are a few things you can do to help weather them — especially in the event of a recession.

Let’s take a quick look at four ways you can prepare for a possible downturn in the economy.

1. Secure your emergency fund

You will rarely regret having more money on hand than you need. That’s why you should keep at least six months of your living expenses in an easily accessible — and liquid — savings account. You can easily compare interest rates from different providers to find the best deal. However, the most important aspect of the emergency fund is that it is protected from market fluctuations and you can access it quickly.

It’s easy to think that you can just invest your emergency fund in certain securities, like dividend stocks or bond funds, but that’s really not recommended. As we’ve seen, markets can and do fall quickly, so you need to be sure you’re standing safely on the sidelines with your emergency fund.

2. Keep making money

This might seem obvious, but it’s best if you don’t take large amounts out of your portfolio during a recession. When stock values ​​have fallen, selling stocks to cover day-to-day living expenses can significantly reduce your portfolio’s long-term growth potential.

If you are just starting out in your career, you should try to make yourself indispensable to your current business and consider alternative sources of income if necessary.

If you’re in pre-retirement or retirement, any extra income is very important to maintaining your savings. While there are certainly pros and cons to working in retirement, earning an income can help you limit the drain on your portfolio and have non-financial benefits as well.

3. Keep investing

Emotionally counterintuitive, when the markets are in turmoil is actually the best time to invest. With every dollar you invest, you’re buying more stocks than you did when the market was at its peak. When the market bounces back, you’ll have more than you started with (assuming you haven’t taken any withdrawals in between).

If you stop investing after a price decline, you’re undoubtedly limiting your wealth-making potential. Choosing a fixed interval and investing regularly (eg, once a week, once every two weeks) is a smart strategy when it comes to financial planning — regardless of what’s happening in the stock market.

Control what you can

Falling markets are no fun for almost any small investor. But there are some things you can do to make your life a little easier in the long run, especially when we’re in for a prolonged downturn. You should secure your emergency fund, keep working, and keep investing.

There’s only so much we can control when it comes to investing, so make sure you’re doing everything you can to protect yourself and your investment portfolio.

The article Fear of a recession? How to Prepare for It first appeared on The Motley Fool Germany.

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This article was written by Sam Swenson and was published on Fool.com on 6/15/2022. It has been translated so that our German readers can join the discussion.

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