Should you invest during a recession?

Often the answer is yes to that question, especially if you’re the one asking it. It probably means you have some extra savings and are thinking big picture.

It can be a very good time for you to invest during a recession for a couple of reasons:

1. Prices are frequently cheaper and markets are generally down (reflecting temporarily lower corporate profits during the recession).
2. People's expectations are low.

These 2 factors combine for an opportunity for you to invest as prices come down. For example, you might be able to buy stocks, bonds, or real estate that look like great investment opportunities, but are normally too expensive to purchase.

Recessions are also a great opportunity to use a dollar-cost averaging approach because you’ll buy shares of what you already own as the price declines.

Should I try to time investing during a recession?

In the midst of a recession prices will tend to be near their lows. Remember, the stock market is usually a leading indicator -- stock market prices may be cheapest 3 or 6 months before a recession ends. The market will begin to recover BEFORE the economy recovers. History says 1 – 2 quarters ahead is a good estimate.

Staying consistent with our general financial planning and wealth management advice we think trying to time your investment at the perfect moment is not what you should focus on.

Recessions tend to be fairly short which can make them tricky to time. Capital Group’s analysis of 11 cycles since 1950 shows that recessions have persisted between two and 18 months, with the average spanning about 10 months.

If you plan on investing during a recession, and in general, you’d be wise to take a long-term investment horizon approach.

As prices begin to recover and as people’s expectations go higher stock prices tend to go higher.

So yes, investing during a recession can work very well, and we think it’s something you should consider if you’re able to do so.

If you have any questions give us a call at (317) 814-7800.

As of writing this article we’re not certain we’re in a recession. We do believe there’s a small or medium size recession coming.

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