From an unemployment standpoint, the U.S. economy is in a pretty good place. February's 3.9% jobless rate is not only low historically speaking, but it's relatively low in the context of recent years.
Despite that, data from Empower shows that 42% of Americans are still bracing for a recession this year. And if you feel similarly, you may be wondering if you should hold off on investing your money. But the answer is, it depends on your financial situation.
Take care of your near-term needs first
Investing money is a great way to grow wealth over time. The sooner you start investing, the more wealth you have the potential to gain through the years. But if you have some near-term financial shortcomings to address, then you're better off waiting to invest so you can work on those.
One of the best ways to get through an economic downturn unscathed is to have a fully loaded emergency fund. At a minimum, that means having enough money in savings to cover three full months of essential living expenses.
If your savings aren't at that level, then you shouldn't invest yet -- regardless of whether you're worried about a recession. Rather, your first financial priority should be to boost your cash reserves. That way, if a recession hits and you're laid off, you'll have money to pay your bills.
The next thing you should do is assess your debt. You don't have to worry as much if you're carrying a mortgage you might still be paying in 20 or 25 years. But if you have high-interest debt, like a credit card balance, that's the sort of debt you'll really want to shed ahead of a recession, as having to make those payments could be a huge financial burden. (And again, even if we take a recession out of the equation, the sooner you pay off a credit card, the less interest you end up accumulating.)
However, if you're set with emergency savings and the only debt you have is a mortgage or a reasonably affordable car loan, then you shouldn't let recession fears stop you from investing and putting your money to work. Over the past 50 years, the stock market has averaged an annual 10% return. If you have $5,000 to invest, in 30 years, it could be worth over $87,000 at that same return. Wait five years to invest it, though, and you're looking at just $54,000.
Prepare for a recession, but don't stress needlessly
Based on present economic conditions, a 2024 recession looks unlikely. However, we can't definitively rule one out. At the start of 2020, recession fears weren't particularly prevalent. But then a pandemic hit a couple of months later that knocked the economy on its tail.
As such, it's always a good idea to be ready for a recession. And you can do so by maintaining a strong emergency fund and steering clear of high-interest debt. But you shouldn't let recession-related worries stop you from investing your money and taking advantage of the opportunity to grow wealth over time.
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FAQs
Although the U.S. economy is relatively stable, we can't definitively rule out a 2024 recession. If you have a fully loaded emergency fund and no high-cost debt, you shouldn't hesitate to invest. Hold off on investing if your near-term savings need work or you have high-interest debt to shed first.
How do you prepare for the 2024 recession? ›
Here are my tips to get ahead of the tides and recession-proof your cash.
- Think about where to cut back. ...
- Start building your rainy-day reserves, if you haven't already. ...
- Pay off high-interest debt ASAP. ...
- Think about your career. ...
- Keep calm and carry on.
UN Trade and Development (UNCTAD) forecasts global economic growth to slow to 2.6% in 2024, just above the 2.5% threshold commonly associated with a recession. This marks the third consecutive year of growth below the pre-pandemic rate, which averaged 3.2% between 2015 and 2019.
Will the stock market recover in 2024? ›
While there could be a growth slowdown in the first half of 2024, experts believe growth should resume in the second half of the year. Americans faced many financial challenges this year, from persistent inflation to increasingly expensive debt.
Should you still invest if a recession is coming? ›
Some may not recover from a recession for years. Others may not recover at all. If you invest, you may experience gains or losses. If you don't invest, losses will be off the table, but you may miss the early stages of a recovery, or inflation may erode the purchasing power of your cash over time.
What will happen to the economy in 2024? ›
Economic growth is projected to slow in 2024 amid increased unemployment and lower inflation. CBO expects the Federal Reserve to respond by reducing interest rates, starting in the middle of the year. In CBO's projections, economic growth rebounds in 2025 and then moderates in later years.
What gets cheaper during a recession? ›
Because a decline in disposable income affects prices, the prices of essentials, such as food and utilities, often stay the same. In contrast, things considered to be wants instead of needs, such as travel and entertainment, may be more likely to get cheaper.
What are the financial predictions for 2024? ›
We expect real GDP growth to walk the line between a slight expansion and contraction for much of next year, also known as a soft landing. After tracking to a better-than-expected 2.8% real GDP growth in 2023, we forecast a below-trend 0.7% pace of expansion in 2024.
What is the financial forecast for 2024? ›
Global growth is projected to edge up from 3.1% in 2023 to 3.2% in 2024 and 3.3% in 2025. This is a marginal upward revision compared to the Winter Forecast. The growth outlook for the US looks better than previously expected, mainly due to a strong end-of-2023 performance.
What is causing the recession in 2024? ›
Any investor who hasn't been living under a rock for the past year is already aware that the primary economic risk factor heading into 2024 is inflation. After reaching a 40-year high of 9.1% in June 2022, year-over-year consumer price index inflation has fallen to just 3.1% as of November 2023.
As a whole, analysts are optimistic about the outlook for stock prices in 2024. The consensus analyst price target for the S&P 500 is 5,090, suggesting roughly 8.5% upside from current levels.
What stock will boom in 2024? ›
2024's 10 Best-Performing Stocks
| Stock | 2024 Return Through April 30 |
|---|
| Avidity Biosciences Inc. (RNA) | 166.6% |
| Trump Media & Technology Group Corp. (DJT) | 185.3% |
| Canopy Growth Corp. (CGC) | 191.2% |
| Super Micro Computer Inc. (SMCI) | 202.1% |
6 more rowsMay 3, 2024
Here's the Growth Stock to Buy Right Now. The Nasdaq-100 technology index plunged into a bear market in 2022 on the back of a 33% loss for the year.
What is the best asset to hold during a recession? ›
Still, here are seven types of investments that could position your portfolio for resilience if recession is on your mind:
- Defensive sector stocks and funds.
- Dividend-paying large-cap stocks.
- Government bonds and top-rated corporate bonds.
- Treasury bonds.
- Gold.
- Real estate.
- Cash and cash equivalents.
That said, timing a recession is difficult to do, and selling into a falling market may be a bad choice. Most experts agree that one should stay the course and maintain a long-term outlook even in the face of a recession, and use it as an opportunity to buy stocks “on sale.”
How to profit from a recession? ›
What businesses are profitable in a recession? Many investors turn to stocks in companies that sell consumer staples like health care, food and beverages, and personal hygiene products. These businesses typically remain profitable during recessions and their share prices tend to better resist stock market sell-offs.
How does the average person prepare for a recession? ›
To help prepare for a recession, job loss or other financial hurdle, aim to build an emergency fund that covers three to six months of living expenses. If you're falling behind in debt payments, reach out to your creditors and ask for hardship concessions.
How much money do I need to survive a recession? ›
Finance Experts All Say the Same Thing
They all said the same thing: You need three to six months' worth of living expenses in an easily accessible savings account.
How should I prepare for the upcoming recession? ›
Here are five ways you can prepare for a recession:
- Make sure your financial plan is up to date. You don't want to be left flustered if conditions begin to deteriorate because you haven't planned for it in advance. ...
- Review your budget. ...
- Fully fund your emergency savings. ...
- Pay down debt. ...
- Network and earn additional income.
