A financial planner says there's a 'huge opportunity' to build wealth during a recession, but there's still one reason to consider moving your money out of the market
- The stock market is not the best place to keep money for short-term goals if you're worried about a recession, says Lauren Anastasio, a financial planner at SoFi.
- If you have investments you'll need to cash out in the next two to four years to fund a short-term goal, it may be a good time to move the money into a high-yield savings account.
- A high-yield savings account can keep that money completely safe, accessible, and even help it steadily grow.
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Despite most metrics indicating the United States economy is doing well right now, there's widespread speculation that a recession is on the horizon.
As long as you have a cash safety net to fall back on should you lose your job or face an unexpected expense, there's little reason to panic, says Lauren Anastasio, a certified financial planner at SoFi, a personal-finance company.
In fact, a recession can be a huge opportunity to make money if you're invested for the long term, she says. Investing in stocks while prices are low means you can take advantage of an inevitable market upswing down the road.
But while it may be a good time to funnel savings into retirement accounts, which have years to rebound before you'll need the money, it's not a good time to keep money for short-term goals in the stock market, Anastasio says.
"If that goal or when you plan to use that money is any time in the next two to four years, that's a scenario where it may make sense to move out of the market and be in a high-yield savings account or stay in cash, simply because you've been saving and investing for a purpose and at this point your time horizon isn't long enough that if we do experience a downturn, there isn't enough time to rebound from that," Anastasio says.
Common short-term goals include making a down payment on a house, having a baby, paying for a big vacation, starting a renovation project, planning for a lapse in regular income, or going back to school. By keeping the money you need for those goals in the stock market, there's a high chance you'll wind up with less than you invested when there's a market downturn. A high-yield savings account can keep that money completely safe, accessible, and even help it steadily grow.
As Anastasio says, the best position to be in during a recession is one where you can virtually ignore the balance in your investment accounts.
"Knowing that their investment accounts could basically go untouched and it doesn't matter if it drops 50% and then at some point it eventually rebounds, if they have the wherewithal - not the willpower, because most of us have a hard time resisting looking at the accounts - but if they have the ability to ignore the noise and ignore the fluctuations because they're not in a position where they have to sell out of the market because they need the cash, that's the situation someone wants to be in," she says.
- Read more:
- 2 steps to take to protect your money from a recession, according to a financial expert and bestselling author
- 7 signs you're spending more money than you can afford
- The No. 1 sign your money will survive a recession, according to a financial planner
- The 3 most important things to do with your money right now if you're worried about a recession, according to a financial planner
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