Ways to Help Protect Your Savings and Investments During a Recession

No matter what your financial position is, it’s natural to feel on edge about your savings and investments during a recession.

So let’s go over a few ways you could look after your money in times of economic uncertainty.

Managing your personal savings during a recesssion

Savings accounts can be a good place to put your money to work earning interest during a recession. While interest earnings may be modest, savings accounts are generally considered to be a safe place to park your money. 

For peace of mind, be sure your bank is a member of the Federal Deposit Insurance Corp (FDIC), which insures deposits up to a certain amount – typically up to $250,000 per depositor, per bank, for each account ownership category. 

If you have a CD (certificate of deposit), many come with fixed rates, so even if you were to see a drop in interest rates in a recession, your CD earnings won’t be impacted because you’ll get a predictable stream of interest earnings during the term of your CD.

That being said, however, just know that if you plan to renew the CD once it’s matured, the APY associated with your account won’t necessarily roll over – instead, you'll receive the currently available rate.

Looking after your investments during a recession

Even the most experienced investors might be feeling anxious during a recession. While it’s normal for stocks to go up and down, when we’re in a recession, the volatility can be even more nerve-racking. If you’re worried about your portfolio, there are things you could do to help minimize your risk exposure.

First, it’s a good idea to understand your risk tolerance. Does your current investment plan appropriately reflect your appetite for risk? If not, it may be time to check in with your financial advisor and see what kind of adjustments you may need to make. 

When it comes to managing risk, consider your time horizon too. Younger investors who can stay in the game for longer might have a higher risk tolerance than someone retiring in the next few years.

Those who are new to investing may get jittery during a market downturn. This is why having a solid grasp on investing fundamentals and how the stock market works can help calm nerves and boost confidence. 

For example, understanding that some volatility in the markets is normal can help you stay level-headed in times of uncertainty. When it comes to investing, it’s important to take the long view and not let short-term market volatility distract you from your long-term goals.

One strategy that could help protect your portfolio from the ups and downs of the market is diversification.

A portfolio with a mix of ETFs, stocks, and bonds can help give you peace of mind and ensure you have eggs in multiple baskets. The general idea is that if one part of your portfolio takes a hit during a downturn, the other assets may help soften the blow. Now, a diverse portfolio doesn’t guarantee you won’t experience losses, but investing in a mix of assets can help limit your overall risk exposure.

Staying on top of your retirement savings during a recession

Since your retirement accounts are likely part of your broader financial portfolio, you’ll want to keep in mind many of the things we mentioned above: time horizon, risk tolerance, and diversification.

How your portfolio performs day to day will fluctuate, and to some degree, that’s out of your control (we know, it’s frustrating). The thing you can control though is continuing to make regular contributions as long as you’re able. 

A recession may seem like a good time to pull back on your retirement contributions and dedicate that money elsewhere. But when saving for retirement, it’s important to stay consistent and take the long view despite short-term market disruptions. Pausing your contributions could impact your ability to reach your retirement goals.