Is a recession looming in the US? Should I even invest in the market during a recession???

hank | Jan 29, 2008 | View Comments


Photo by: aturkus
Yes, the recession is looming; stock are dropping, bonds, are dropping, meaning mutual funds are dropping. China’s market is freaking out, India‘s market is freaking out, and it looks like the US is hot on their tails. People say that there are only “bear” and “bull” markets, well this market to me sounds like a “gazelle” market. What’s a” gazelle” market? Well, when one in a group of gazelles gets spooked, they all go running, and that’s what I’m seeing in the market now.Is this bad for you as an investor?

Well, maybe if you’re 68 years old and looking to retire in the next year. Having your investment fall off like this right at the end doesn’t help. In my opinion, if you are planning on retiring in 2008, it might not be a bad idea to get out of the stock market all together. You SHOULD be allocating your funds off and be out of the market all together (and be primarily in low-risk funds like bonds) if you’re properly grooming your portfolio by this age, but if you ARE in, I’d get out.If you’re 28 years old and seeing this, I’m sticking to my guns, actually maybe even drooling.

If the market is down, that means prices are down on stocks. I stick close to $500 per month in my ROTH IRA and 401k combined. For the sake of numbers lets say that usually buys me 100 shares of my choice of funds I’m in. Well, with the market going down, the price of those funds go down, and that means for that same $500, I am getting 150-200 shares of those stocks with the same $.

“But Hank, it is a recession, everything is going down, how do you know your fund won’t go out of business????”

That is the beauty of a mutual fund:

1. It already IS diversified by nature. I’m in 20 (or so) stocks right in my fund choices. That’s the point of a mutual fund.
2. I’m paying the manager (via the expense ratio) of that fund to choose the best stocks in that fund. If he/she sees fit, he/she will get out of it.
3. I’m investing in GOOD mutual funds. I’m not going out on a limb with my investments, they’re strong companies in America that are driving my investing ship.

So yes, the recession may be looming, and likely if you’re reading my blog, you’re NOT 68 and you’re in between 20-40 and COMPLETELY fine with the recession. The big thing to think about is how many recessions have happened since the stock market started? 10? 20? 30? A handful for sure, so don’t worry about it. Ride the wave and the $ will come back. If the stock market goes 100% in the drink, we’ve got a lot bigger problems to worry about.

Do you have any stories of the previous recessions we’ve seen in the market? Did you stay put? Do tell!

Filed Under: 401K • Compensation • Emergency fund • Investing • Mutual Funds • Net Worth • Portfolio • financial education

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  • I would keep investing even when market is going down. Pick up some good companies or etfs that have dividends or comodities like gold. This way you get something while you wait for market to come back.

    Best etf funds's last blog post..Gold double long etf.
  • I am investing right now. I know if i invest in income producing stocks or bonds i can use that money to buy more. The prices are so low they are a great deal right now.

    Pimco has some great funds i invest in also.

    yield's last blog post..Pimco high yield bond fund nav.
  • FFB
    Know when I started putting more money into my company's 401(k)? Around 2001 when everything was tanking. I think the S&P was in the 700's or so. Even though my S&P index isn't doing so great today, the shares I bought in the 700's have still grown a good bit!

    If you have plenty of time yet then I think you stay the course and keep investing in your funds or ETF's (so long as you were already investing for the long haul).
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