Economies and markets operate in cycles. When times are good, you may be more willing to spend money on items you normally wouldn’t buy. You will probably go out to eat more and won’t mind buying the next gadget that’s available. However, this mindset and spending habits can change quickly during an economic crisis. When this type of market occurs, it’s good to know where to save, borrow and invest.
Where to Save
If you haven’t already, it’s a good idea to have an emergency fund available and set aside with an adequate amount of money available. It’s important to set a goal on how much cash you want to have in this type of fund and add to it periodically. You’ll want to keep your emergency fund at a bank or credit union and hold it in a savings account that generates an interest payment.
Normally, it can be helpful if you have saved an amount of cash that allows you to pay your expenses for three months when both you and a partner are generating income, but when the economy turns south, you’ll be better off if you have enough cash saved to pay your expenses for six months. This may be even more crucial if you’re associated with an industry that typically gets hit hard when a recession takes place, which can include areas such as construction, food or financial services sectors.
Where to Borrow
Some debts are beneficial to have such as a mortgage, which provides you with leverage to own your own home. If you’re borrowing money for this type of asset, it can reward you with price appreciation and the comfort of having your own place to live. Borrowing money for this type of endeavor makes sense, but it’s usually best if you can stay debt-free, especially if a recession is coming.
If you’re currently paying a debt that has a higher interest rate, it’s usually on a credit card where you are carrying a monthly balance. To help prepare for an economic crisis, it will be beneficial if you can prepare as much as possible by reducing this type of debt. Focus on trying to lower your debt as much as possible by paying off credit card balances that have lower interest rates. By lowering the monthly expense, it can give you a higher chance of not being stressed during a recession, especially if you end up losing your job or are required to tighten your spending.
It may even help to apply for a credit card that is interest-free for a certain period, which can allow you to transfer funds and save on interest each month. This will allow you to wipe out your debt even faster and get ready for an economy that isn’t as robust as usual.
Where to Invest
When an economic crisis occurs, it usually strikes the stock market, which can wipe out paper profits fast, especially if you’re holding stocks in companies that are more prone to be affected by the overall economy or in specific niches. The stocks to buy for a poor economic environment include the following:
- Walmart (WMT) – People will shop at a discount retailer like this when they are concerned about the economy and tightening their pocketbooks.
- Ross Stores (ROST) – This is a discount clothing retailer that provides consumers with a way to save on clothing purchases.
- Hasbro (HAS) – Toys and entertainment are two areas that should continue to receive money from consumers during economic downturns.
- Church & Dwight Co. (CHD) – This company is associated with Arm & Hammer-branded products such as Trojan and OxiClean, which are consumer brands that continue to get used.
- Dollar Tree (DLTR) – People will still need to purchase everyday items such as trash bags, condiments and cleaning solutions during a soft economy.
- Coca-Cola Co.(KO) – Individuals around the world will usually continue to drink this popular soda during times when the economy is acting poorly.
- Southern Co.(SO) – This is an energy company that should continue to generate predictable cash flows throughout a recession.
- Clorox Co.(CLX) – This consumer brand tends to stay steady during recessions and pays a dividend.
- Barrick Gold Corp. (ABX) – A gold mining company that may act as a hedge against a stock market downturn.
- Newmont Mining Corp. (NEM) – This is another large gold mining company that tends to do well when the economy is in crisis mode.
During economic downturns, people still need to buy consumer goods such as cleaning detergents, shampoo and other household items. They will also continue to buy inexpensive items that keep them happy such as soft drinks like Coca-Cola or items you’ll find at a company like Dollar Tree or Walmart. Precious metals like gold are usually a hedge against the stock market and economic troubles, which makes shares in mining companies attractive.
By being prepared and planning financially, you can get through a downturn in the economy. This helps ensure that you are stress-free and can live comfortably.
About The Author
Michelle Joe
Michelle Joe is a blogger by choice. She loves to discover the world around her. She likes to share her discoveries, experiences, and express herself through her blogs. You can find her on twitter
