The No. 1 sign your money will survive a recession, according to a financial planner
Courtesy of SoFi
- There's no way to recession-proof your money, but economic turmoil doesn't have to ruin you financially.
- Lauren Anastasio, a certified financial planner at SoFi, says investors with the "wherewithal" to ignore market fluctuations during a recession will come out on top.
- In other words, if the money you have invested in the markets isn't essential to your current financial plan, you'll be OK.
- But, you should only invest after you've paid off high-interest debt and at least started building an emergency fund.
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If you're invested in the markets, there's virtually no way to recession-proof your money.
You can be sure an economic downturn will affect your investments in one way or another. But, if you're not relying on that money for day-to-day living or an upcoming expense, you'll be just fine, says Lauren Anastasio, a certified financial planner at SoFi, a personal-finance company.
"If you're in a position where you're investing for the long term and you have the ability to ignore what's happening to your account balance because you don't need that money to live off of in the next few years, that's a big indicator [you can survive a recession]," Anastasio told Business Insider.
In other words, if your investment strategy is predicated on long-term growth - e.g. you're building a nest egg for a retirement that's a few decades away - chances are that money isn't essential to your current budget.
Here's Anastasio: "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."
If you have an emergency fund and little or no high-interest debt, a recession won't ruin you
To be sure, most financial experts recommend investing only after you've paid off high-interest debt and set up an emergency fund, which can act as a safety net should you face an unexpected expense or lose your job. Your retirement accounts are usually the best place to start investing, since they're focused on long-term growth anyway.
Also, it's rarely beneficial to obsess over your investments, no matter what state the markets are in. Still, it's understandable that many of us panic when we know we could be losing money, Anastasio says.
"As we get very nervous, the last thing I want to see people do is frantically sell out of the market because they're worried that everything they own is going to go to zero," she says.
"For anyone who is in their career, the biggest thing for them is not going to be what happens to their investments," Anastasio continues. "It's going to be 'Do they have sufficient savings to get them through an uncertain period of time should something happen to their income?'"
Even people with the most secure jobs may still experience a decrease in income during a recession, she says. In addition to at least starting to build an emergency fund, paying down high-interest debt should be a priority, Anastasio says. "This is going to be helpful at any point in time, simply because it's going to be particularly expensive and a burden when trying to tackle other financial goals."
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