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

FAQs

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

I get asked all the time about the possibility of a recession, and I'm telling everyone to prepare. To start, pay off high-interest debt, bulk up your rainy-day reserves, and don't sell your investments. Take courses to advance in your career, too, so you're not as vulnerable to layoffs.

I get asked all the time about the possibility of a recession, and I'm telling everyone to prepare. To start, pay off high-interest debt, bulk up your rainy-day reserves, and don't sell your investments. Take courses to advance in your career, too, so you're not as vulnerable to layoffs.

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.

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.

Because a decline in disposable income affects prices, the prices of essentials, such as food and utilities, often stay the same. In contrast, things considered to be wants instead of needs, such as travel and entertainment, may be more likely to get cheaper.

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.

How to prepare for a recession food? ›

A certificate of deposit (CD) is a good alternative if you're risk-averse when it comes to investing. A CD is a type of savings account that allows people to earn interest at a fixed rate often higher than what's available with traditional savings accounts.

Although each recession has unique features, recessions often exhibit a number of common characteristics: They typically last about a year and often result in a significant output cost. In particular, a recession is usually associated with a decline of 2 percent in GDP.

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. The exact amount of cash needed depends on one's income tier and cost of living.

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.

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.