In these tough economic times, many people are shying away from investing – and who can blame them? Scores of workers nearing retirement stood by and helplessly watched as their 401k accounts tanked overnight, prices of real estate plummeted; mortgage holders found themselves with underwater loans… the list of casualties could go on for days.
Conditions are not optimal for investors right now. Although we’re seeing the stock market tentatively recover, consumers are not yet convinced we’re out of the woods just yet. Some analysts even caution against investing altogether until the Great Recession is completely behind us. So, should you still invest?
The answer is a very conditional yes. Now more than ever, it’s critical to exercise due diligence when choosing investment vehicles in which to sink your hard-earned dollars.
First, Ditch Those Debts
Investing during a recession is risky, but it can be done. However, when tough times hit, it’s more important than ever to ensure your emergency fund is established and your debts are in check before you sink your money into things like stocks and bonds.
Pay down your debts, get rid of high-interest credit cards, and set aside enough money to cover expenses for at least a year before you spend on investing. This advice does not include your retirement account, however – growing your retirement savings is a must regardless of economic conditions.
Diversification is always a smart investment strategy, but during a long, deep recession, it’s more a matter of survival. You never know what’s going to tank or when – housing prices could plummet, for example, and if you’ve invested in real estate alone, you risk losing your shirt.
On the other hand, if you’ve spread the love over a mixed portfolio made up of any combination of stocks, money market accounts, mutual funds, retirement savings, and/or real estate, then you can better afford to weather dips and spikes.
Go Global and Buy for the Long Haul
Let’s face it, the most stable companies are operating in a global market – it’s not country-specific any more. This translates to investing in the biggest brands, such as Wal-Mart, Google, Coca-Cola, and others. You want companies with enough worldwide pull to bring in the business regardless of economic instability.
The final way to ensure investing is worthwhile for you is to keep at it for the long haul. Day trading is a thing of the past, and real estate flipping, quickly buying and selling stocks, and trading on the fly are all detrimental to your portfolio. Why? By investing short-term, you’re completely robbing yourself of the power of compound interest. When you open a retirement account, buy a stock, invest in real estate, or make any other big moves during the recession, make sure you’re planning on sticking with your decisions for decades into the future.