Withstanding bad economic dips is unfortunately something you will have to deal with throughout your financial journey. The economy is forever-changing; constantly experiencing peaks and valleys throughout different economic cycles. Without much control over how the economy behaves, you should take the necessary precautions when you are looking to protect your nest egg.
While we always want to earn high returns on our capital, it is not always that easy. You need plan your finances conservatively at volatile times in the market to protect your future. When the economy is experiencing turbulence, financial planning becomes paramount for your financial future. In bear markets, be mindful about how you spend your money and how you invest your money.
It is commonly thought that bear markets are the right time to sell. However, this might not always be true. Fortunes have been made by investors from buying during the dark times. In order to get rich from investing, you must have a strong stomach for the good and bad times the market will experience.
Financial planning requires a great deal of understanding where your money is currently sitting and analyzing if you are at risk during any economic downturns. If you do your due diligence, you can be financially prepared for a bad economic dip and take advantage of discounted assets.
Protect Your Money
Financial security is always a cause for concern, especially during bad economic dips. Building a strong financial foundation requires getting rid of any outstanding debt and staying on top of your monthly bill payments. Paying your bills on time will help you maintain a healthy credit score and preserve your financial security.
Protecting your money is the first thing you need to do before you even think about investing your money. You can protect your money by tracking your finances accurately and staying mindful of your spending. There are many different tools you can use that will also help you protect your money. Banks offer beneficial reward programs along with high-yield interest rates if you protect your money with their institution.
Choosing the Right Online Bank
Digital transactions has opened the door to online banking and seamless investing. With a few clicks of a button, you are able to schedule bank transfers automatically and make deposits into your investment accounts quickly. There are some key differences between online banks and investing apps that you should evaluate before choosing the right option for you.
Bank of America has invested heavily in their mobile banking app which makes it easy to manage your personal finances on-the-go. The Bank of America banking app allows you to make mobile check deposits by taking a picture and uploading it to your account. B of A is also a partner in Zelle which lets you send money to people instantly.
Chase Bank is another very reputable bank that offers up to $200 in cash to new customers who sign up for a new checking account with direct deposit features. Chase also has several different benefit programs for business owners, drivers and preferred cardholders as well. Chase also is a partner in Zelle which makes it an attractive option for consumers.
Online banking should be simple without complications. Whether you are looking to make a deposit, a bank transfer or withdraw cash from an ATM, your bank should be as easy as possible.
Building Your Financial Cushion
It is always suggested to keep a generous financial cushion for yourself. This is often referred to an emergency fund but also can be considered your basic financial cushion. In economic downturns, it is helpful to avoid digging into this fund, in fact, it is highly recommended to add to this fund if you can.
Try to find spare change around the house, sell old items you no longer use around the house and find other ways to make extra money. If you can find ways to add more money to your emergency savings fund during an economic hiccup, you will be well-prepared for anything that comes your way.
Part time work is always helpful when you are trying to save more money. You can find plenty of ways to make more money online or through easy gigs as well. There are an influx in part-time job openings this year with the upcoming U.S. Census as well.
Continue Contributing to Your Retirement
Although economic downturns might be scary, it is still important to continue contributing to your retirement funds. The reason being, when the economy goes into a downslide, it typically has been said to last anywhere from 12-18 months. That is roughly a year to a year and a half.
There is no reason to stop contributing to your retirement accounts due to economic downturns. You will end up regretting your decision years down the line. If you have to, reduce your contribution amount so you have extra cash on-hand to invest or use as a security measure.
Different Types of Investments
No matter what health the economy is in, investments will always be an important thing to consider. There are many different types of investments you can look to put your money into in hope to creating more wealth. Make sure you evaluate different investment types so you can compare the benefits and risks of each.
U.S. Treasury Bonds
U.S. Treasury Bonds have traditionally been looked at as the safest type of investment vehicle you can possibly invest in. Treasury bonds are backed by the U.S. government and are very secure investments. You can visit the U.S. Department of Treasury for more info here.
Although U.S. Treasury bonds are safer investments, they are naturally more conservative with lower yield rates. If you are looking for high-yield investment vehicles, U.S. Treasuries might not be your best option. However, if you are looking for a safe, longterm investment vehicle, these are a great choice for you.
The U.S. bond yield curve is a major indicator of the economy and just this week Bloomberg released more information about the downturn we have hit. The entire U.S. yield curve fell below 1% for the first time in history as rising expectations that the Federal Reserve will cut policy rates to zero in the coming months drove investors to reach for longer-dated securities, according to Bloomberg.
High-Yield Savings Accounts
High-yield savings accounts are not huge money makers, but they are save and earn you money on your savings. Avoid saving your money in a bank account without beneficial rates. Take advantage of banks that offer high-yield savings accounts so you can earn money while your money sits in the bank. You can get paid to save your money!
Marcus by Goldman Sachs is a highly recommended mobile banking app that comes with a high-yield interest rate for their members. If you choose to open a Marcus account with Goldman Sachs, you can earn up to 1.70% on your money with 0% personal loan options as well.
Ally Bank is another very reputable high-yield banking option to consider. Ally Financial offers many different benefits to their members with low-interest loans, savings plans and retirement options as well.
Index Fund or ETF
It is highly recommended to stay away from individual companies during economic uncertainty and put your money into a more diversified fund like an ETF or an index fund. These options are less risky picks that are invested in multiple different companies rather than just one individual stock. When we run into bad economic dips, it is best to diversify as best as you can.
In addition to diversification, you can also collect dividends from an index fund or an ETF. People often refer to an ETF as an index fund simply because ETFs are invested in many indexes.
Investing in an index fund is helpful to give yourself diversity and not rely on one sole company as an investment. Instead, you will be invested in many different companies to give yourself more financial security.
While the best known funds are the S&P 500, the Russell 2000, Vanguard 500 index fund and Fidelity 500, there are plenty of different options you can choose from. Be sure to evaluate dividends, yield rates and the past 5 years of any investment you are analyzing.
Riding Out Bad Economic Dips
Although there have been many bad economic dips, there are better days ahead. Regardless of the reason for a slowdown in the economy, there are ways for market to improve.