One Key Tip for Recession-Proof Investing, According to Investment Advisors
Fluctuating prices are inevitable whether you’re at the gas pump or purchasing real estate. Even a slight increase may have you thinking twice about grabbing your go-to latte before you start your day. After all, you work hard for your money, and inflation probably holds your purse strings a little tighter. Although saving money may be more difficult, it’s a wise idea to start investing in your future, even if that means only putting a few dollars away each week. But how and where do you start saving?
Follow Topics for more like this
Follow for more stories like this
“Unfortunately, there isn’t a good place to hide this time around,” reveals Jacob G. Sensiba, who is an investment advisor with CRG Financial Services. Traditionally, folks invest in stocks, bonds, and precious metals, all of which oscillate at different rates. The adage “buy low, sell high” generally works for these types of investments, though knowing exactly when to acquire and offload them is tricky. Additionally, there are no guarantees that a particular method will be entirely unaffected by economic decline.
However, you can invest more wisely to protect yourself and your hard-earned dollar. I spoke with two personal finance experts, and they said the same thing: Practice dollar-cost averaging. Although the term may be new, it’s a wise way to save, no matter when you start. Plus, investing smartly — and potentially trying a new method — is essential with the uncertainty of what’s coming over the next six to 12 months. Here’s what you need to know about dollar-cost averaging to set yourself and your finances up for a successful future.
What Is Dollar-Cost Averaging?
Instead of the buying and selling game, dollar-cost averaging focuses on investing small amounts consistently and over a period of time. Although you can apply this method to large sums of money, it’s ideal for those who want to put a little away here and there. “Dollar-cost averaging is a great strategy to utilize during a recession,” says Carter Seuthe, who is the CEO of Credit Summit Consolidation. “This strategy involves buying a fixed amount of an investment on a regular basis, regardless of price.”
Essentially, instead of waiting until prices get extremely low, you purchase a set amount consistently over a period of time, such as investing $150 each month. By investing regularly, that $150 will buy fewer shares when the market is up and more shares when there’s a downturn. Your investment may buy 30 $5-shares one month and 50 $3-shares the next. That is considered an average of 40 $4-shares, hence the name dollar-cost averaging.
How to Use Dollar-Cost Averaging to Invest
“If you have a couple of decades until you retire, continue investing regularly,” advises Sensiba, who also suggests contributing monthly to your retirement account. “By doing so, you’ll dollar-cost-average your way in, and it’ll cost you less long-term.” As a bonus tip, Sensiba also suggests investing in consumer staples. “This sector is filled with need-to-have products and services — things that people will continue to pay for regardless of what the market and economy are doing,” he adds. Investing in necessities like food, cleaning supplies, and vices like alcohol and cigarettes is also fairly recession-proof.
If you’re questioning whether or not you should pause your investments during the recession, the answer is no, especially if you’re committed to dollar-cost averaging. “Recessions are a great opportunity to use this strategy because you’ll buy shares as the price declines,” recommends Seuthe. Being able to invest consistently and safely no matter what the market is doing will benefit you in the long term, even if that means splurging on those lattes, after all.