Money Management

It’s not easy investing during a recession, but with these expert tips and tricks, you can learn how to invest confidently when the economy slows. 

Investing is an essential part of building wealth and securing your financial future. In reality, the idea of investing can appear daunting, particularly during times of economic uncertainty and market downturns. However, the truth is that downturns provide opportunities for investors who know how to take advantage of them. Here are four tips and tricks for investing during a recession.

1. Don’t make irrational decisions

The stock market typically bottoms out before a recession is officially declared. History shows that investors should avoid making fear-based portfolio decisions during a recession because the worst market losses have typically already occurred.

Stock markets point toward the future direction of the economy, and they usually begin to recover before a recession is declared over. Therefore, wise investors should remain calm and patient, as the economy will eventually recover.

It may be tempting to pull out from the stock market altogether during a downturn, but this move could be detrimental to your long-term financial goals. Investing during a recession can be nerve-wracking, but history has shown us that it can also be a lucrative move.

2. Diversify your portfolio

Navigating the stock market during a recession is no easy feat. While the healthcare sector has historically weathered the storm quite well, other sectors have seen ups and downs throughout economic downturns.

Financials and real estate, for example, may start as some of the worst-performing sectors, but they have generally experienced a strong rebound toward the end of recessions. Real estate even boasted monthly returns almost 6% higher than the S&P 500 during the last three months of the past few recessions.

However, since no one can predict exactly when a recession will start or end, diversifying one’s sector exposure could be a wise strategy for investors. Keep your portfolio well-rounded and you’ll be better equipped to withstand the unpredictable ebbs and flows that come with recessions.

3. Identify market opportunities

Investing can be tricky, especially when it involves a volatile market that is susceptible to fluctuations. Waiting until there are sure signs of a recession being over before investing may seem like the safe thing to do, but in reality, it might result in missed opportunities for market gains.

When the market is low, there is potential for high returns as the economy begins to recover. In fact, the S&P 500 gains have shown to average 40% from market lows until the date the National Bureau of Economic Research (NBER) announces the end of a recession. For example, after the 2008 financial crisis, many stocks bounced back and offered impressive returns to savvy investors who remained steadfast in their investments.

This means that those who waited until the recession had clearly ended may have missed out on significant market gains. As an investor, it’s important to adopt a strategic and proactive approach to identify potential market opportunities, even during a recession.

By doing so, you can take advantage of the dip in the market and potentially reap significant gains when the market bounces back. So don’t let fear hold you back — be proactive and seize the opportunities that the market presents.

4. Consider low-cost or free investment options

During a downturn, investment costs can eat into returns, and this is why you should consider low-cost or free investment options. For traders, online brokerage platforms like Robinhood offer free commission trades on most stocks and ETFs.

Additionally, robo-advisors, which provide automated investment advice, offer low-cost portfolio management services, starting from as little as $1 per month. With these options, you can save more on trading fees and focus on earning greater returns.

Bottom line

Investing during a downturn doesn’t have to be as scary as it seems. By avoiding panic selling, exploring market opportunities, and diversifying your portfolio, investors can make smarter decisions during recessions.

Staying the course when everyone else is panicking may make it a great time to invest in the market. The most successful investors are smart, unemotional, and disciplined, and by following these tips, you’re on the right track to becoming one.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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The idea of a recession can be scary. Read on for ways to ease your mind. 

For much of 2022, economic experts warned consumers to gear up for a 2023 recession. And even earlier this year, those warnings persisted despite the cooling inflation and economic data that told a very different story.

More recently, some financial experts have backed off of their recession fears. In early August, for example, JPMorgan Chase’s top U.S. economist said he no longer anticipates a recession this year. And other big names in the banking world have expressed similar views.

But some people remain convinced that a near-term recession is in the cards. If that’s something that worries you, it’s understandable. But here’s why you really don’t need to panic.

It’s not guaranteed to happen

Many of the recession warnings we’ve heard over the past year and change are just that — warnings. Ever look at the weather app on your phone and see a severe thunderstorm warning for the next few hours, only to experience nothing more than a spatter of raindrops?

Well, we might end up in a similar situation here. Unless those people warning of a recession have a crystal ball at their disposal, it’s more than possible that they’ll end up being wrong, especially since many economic indicators, like unemployment, are not pointing to an imminent recession.

Our next recession could be mild

You might assume that any recession that hits the U.S. will be lengthy, painful, and downright extreme. But recessions can be mild, and that’s something to keep in mind when you hear those scary warnings.

You should also know that recessions don’t always go hand-in-hand with stock market crashes. Similarly, a near-term recession is unlikely to send home values plunging downward given the current state of the housing market. Those are things you can take comfort in.

It pays to prepare nonetheless

Whether we’ll experience a near-term recession is, at this point, questionable. But it’s still a good idea to prepare for one — because if a recession doesn’t hit this year, we might experience one next year, or the year after that.

One of the best things you can do to gear up for a recession is to boost your emergency fund. At a minimum, you should aim for enough cash in your savings account to cover three full months of essential bills, like rent and car payments. The logic is that if you were to lose your job in a recession, it might take three months to find a new one, so your savings should be set up to tide you over in that scenario.

Another good thing to do ahead of a recession is shed needless expenses. If there’s a streaming service you’re paying for that you don’t watch, dump it. You don’t need the recurring charge on your credit card.

Finally, aim to bolster your job skills. Doing so won’t guarantee that you’ll be spared a layoff if economic conditions worsen and your company needs to conserve funds. But you may be less likely to get laid off if you’re more skilled than your fellow employees.

The idea of a recession can be daunting, but there’s no need to lie awake at night losing sleep over that possibility. Instead, focus your energy on getting ready for an economic downturn, because it’s good to be prepared at all times — even when warnings aren’t being sounded.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Maurie Backman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends JPMorgan Chase. The Motley Fool has a disclosure policy.

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Block Inc. has become one of the many companies to sue Mastercard, Visa, and their affiliated banks for high fees. Take a look at what the suit alleges. 

The multinational technology company Block Inc. is suing Mastercard, Visa, and their affiliated banks over the high cost of accepting credit card payments. Founded in 2009 by billionaires Jack Dorsey and Jim McKelvey, Block earned a cool $17.53 billion in 2022, and may just have enough money to stay in the fight. Here’s what we know about the suit thus far.

It’s all about interchange fees

If you’re not familiar with the term “interchange fees,” you’re not alone. Interchange fees — also called network fees — are the fees merchants must pay Mastercard or Visa each time they accept payment with a card carrying the Mastercard or Visa logo.

On average, Mastercard charges an interchange fee of 1.5% to 2.6% each time a consumer swipes their card or uses the digital wallet on their smartphone to make a purchase. Visa charges, on average, 1.4% to 2.5%. The precise fee depends on the type and size of the merchant and which card the consumer uses.

Let’s say you own an auto repair business, and after working on a customer’s car, the repair bill comes to $1,500. If the customer pays with a Mastercard, you must pay the credit card company between $22.50 and $39 simply for accepting payment through Mastercard. If the customer pays using a Visa card, you’ll pay between $21 and $37.50 off the top.

In its lawsuit, Block alleges that member banks involved with each network colluded to keep network fees high and use their market power to sustain anticompetitive practices.

How merchants have been painted into a corner

Mastercard and Visa have an “Honor All Cards” policy. Under this policy, Mastercard or Visa may require merchants that accept one of its payment products to honor all of its products as payment. For example, if a business accepts Visa credit cards, the business must also accept debit and prepaid cards with the Visa logo.

To confuse the situation even more, Mastercard and Visa set different rates for credit cards, debit cards, and prepaid cards, making it that much harder for businesses to track how much is coming out of their business bank accounts to cover interchange fees each month.

Given that American’s credit card debt recently surpassed $1 trillion for the first time, it’s clear that credit card use is on the rise. To stay in business, nearly all businesses must accept Mastercard and Visa, thereby tying them into whatever rules the two companies set.

Since businesses are not allowed to choose which credit cards they accept, the lawsuit contends that banks issuing Mastercard and Visa cards have no incentive to compete with each other by lowering fees.

Another brick in the road

This is not the first time Mastercard and Visa have been sued over interchange fees. For example:

Back in 2014, Walmart sued Visa for $5 billion, accusing the company of charging excessively high card swipe fees.In 2019, Mastercard and Visa agreed to slash fees in Europe if European Union regulators would end an antitrust probe into their interchange practice.In March 2023, gas station operators celebrated when an appeals court upheld a $5.6 billion settlement agreement over swipe fees.

And in January 2023, the antitrust division of the U.S. Department of Justice sought additional documentation from Visa as part of its investigation into the credit card company’s fee practices.

Whether this new suit will move the needle is yet to be seen. In the meantime, you may want to ask retailers you visit regularly whether they offer a discount for cash payments.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.Dana George has positions in Walmart. The Motley Fool has positions in and recommends Mastercard, Visa, and Walmart. The Motley Fool recommends the following options: long January 2025 $370 calls on Mastercard and short January 2025 $380 calls on Mastercard. The Motley Fool has a disclosure policy.

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Retiring soon but don’t know how far your savings can take you? Check out these important factors that will determine how long your $1 million will last. 

When it comes to retirement, many Americans are worried about one key question: How long will my retirement savings last? While some believe that $1 million is the magic number for retirement, it’s important to understand how many years a retiree can realistically live on that $1 million. We’ll break down some key factors that affect this — and help you plan for a comfortable and sustainable retirement.

1. Your retirement lifestyle

One of the biggest factors affecting how long your $1 million will last in retirement is your retirement lifestyle. This includes everything from where you’ll live and what activities you’ll enjoy to how you’ll budget for day-to-day expenses.

In general, if you plan to spend more in retirement, your $1 million won’t last quite as long. On the other hand, if you’re planning on living a frugal lifestyle, your savings will afford you more time.

2. Inflation

Inflation is another major factor that impacts how long your retirement savings will last. Over time, inflation erodes the purchasing power of the dollar — meaning that the same amount of money will buy less as time goes on.

While many retirees are tempted to rely on cash for their retirement savings, this approach may leave them vulnerable to the risk of inflation. Experts recommend that retirees invest their retirement funds in tax-advantaged retirement accounts, like a 401(k) or IRA, to create a hedge against inflation.

3. Investment returns

Another factor that plays a major role in determining how long $1 million will last is your investment returns. The stock market can be unpredictable; therefore, retirees should position their portfolios by diversifying across different asset classes to balance risk and stability.

There may be years when your returns are lower than expected, or even negative. It is essential to adjust your investment portfolio ahead of retirement to ensure that it matches your risk tolerance and goals.

4. Healthcare spending

Retirees must budget for healthcare costs and expenses, as these are likely to increase as you age. Medicare can assist with certain costs of medical bills, but it is not a complete solution.

There are many additional costs to consider when it comes to healthcare expenses, including long-term care, prescription drugs, supplemental insurance, and more. A retiree should budget for these expenses well in advance and prepare for unexpected medical events.

5. Withdrawal rates

Withdrawal rates are the amount you withdraw from your investments each year once you reach retirement. In the early years of retirement, many financial experts advise withdrawing less than 4% of savings from your portfolio each year in order to make the retirement funds last. However, this may not work for everyone, as it will depend on your specific financial goals and lifestyle.

For example if you are in the 22% tax bracket and are taking $5,000 a month ($60,000 annually), then your $1 million retirement nest egg will last about 20 years if your annual return is 6% and you increase your withdrawal amount by 3% every year. If you increase the withdrawal rate to 6%, then your funds will last about 15 years.

Bottom line

With people living longer, $1 million for retirement will not last as long as it used to. How long it will last depends on these factors. When it comes to retirement, it’s important to have realistic expectations and a well-planned budget.

The key takeaway is to understand the different factors to plan for as well as to start saving now, if you haven’t already. The earlier you start investing, the more time you have to grow your retirement fund to reach the ultimate goal of financial independence in retirement.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

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One of the greatest fears associated with a recession is job loss. While no industry is 100% immune, take a look at seven unlikely to make big cuts. 

While no industry is 100% safe from job cuts, The Conference Board — a business research group — has identified which industries are expected to experience lower layoff rates during the next recession. Based upon The Conference Board’s Job Loss Risk Index, here are the industries best positioned to ride out another economic downturn.

1. Health services and social assistance programs

The need for healthcare systems and social services does not go away during a recession. In fact, there may be even more demand. Even if demand was not enough to save jobs, the severe labor shortages suffered in both of these industries will make it far more difficult to let employees go. Here are two other reasons health services and social assistance programs are at low risk of layoffs:

Changing demographics — specifically the aging population — increases the demand for both healthcare and social services.It’s difficult and expensive to rehire trained staff once they’ve been let go.

2. Federal government

Regardless of what’s going on, layoffs are rare among federal government agencies. Government jobs are less impacted by temporary economic uncertainty, primarily because the federal government is less sensitive to interest rate fluctuations than traditional businesses are.

3. State and local governments

According to The Conference Board’s findings, unless the recession ends up being deep (which is not expected), severe job cuts in state and local governments are unlikely. The fact that both still face recruitment and hiring challenges may help insulate current employees.

4. Private education

Another industry that’s not sensitive to interest rate changes is private education. As economic troubles swirl, privately funded schools and universities tend to have more resources available to ride out short-term issues. Privately funded schools prepare for a recession much like the average family; by cutting unnecessary expenses and building a healthy emergency fund.

5. Arts, entertainment, and recreation services

Given how sensitive each of these industries are to interest rate hikes, their relatively high debt-to-equity ratios, and how quickly American families cut discretionary spending during a recession, one might think that layoffs would be rampant in arts, entertainment, and recreation services.

However, according to the Job Loss Risk Index, each is expected to be kept afloat during the next recession by labor shortages. Even now, employment in these industries has not returned to pre-pandemic levels, suggesting employers are too short-staffed to make deep cuts.

6. Retail trade

Another industry that one might expect to be hit hard during a recession is retail. After all, when people are faced with less money in their checking accounts, they’re far less likely to buy anything other than necessities.

However, the high quit rate among retail workers and continuous hiring practices by retail establishments indicate that the labor shortage continues. And it’s this shortage that is expected to protect existing workers.

7. Accommodation and food services

By the time pandemic-related lockdowns were lifted, accommodation and food service workers were already beginning to leave their jobs, opting to work in better-paying industries. And though we sound like a broken record, the severe labor shortage in this industry is also expected to protect jobs during the next recession.

Options for protecting yourself during a recession

While you may not be able to leave your current job to land a position in a more stable industry, there are things you can do to prepare financially for a recession. Even if your current job remains safe, these steps offer an extra measure of financial security.

Create a “worst-case scenario” budget. Planning for the worst is not fun, but it does make it easier to manage your finances — especially when things get tough. Include only the necessities. This is the budget you’ll turn to when a recession arrives.Until then, cut unnecessary expenses. Run through your monthly expenses to find any that can be reduced or eliminated. For example, you may cut down from four streaming channels to two or buy a meal out once a week instead of two. In other words, find ways to minimize your spending. This will come in handy once a recession settles in.Continue to plump your emergency savings account. Even if the most you can contribute a week to an emergency fund is $30 to $40, that’s okay. While the ultimate goal is to have enough put away to cover three to six months’ worth of expenses, any amount you build up in the meantime can help cover an unexpected bill.Shop around for cheaper insurance. Studies show that the average person can shave 19% off their current auto insurance bill by shopping around and switching insurance carriers.Switch variable rates to fixed. If you’re carrying any debt with a variable interest rate, look into refinancing it to a fixed rate. The last thing you want to deal with during a recession is an interest rate you can’t count on to remain steady. One way to switch from a variable rate to a fixed rate is by taking out a personal loan to consolidate debt.

As you’ve likely noticed, the post-pandemic era has left us with more jobs than workers willing to fill them. While that’s bad news for industries desperately in search of labor, it may be good news for existing employees who hope to keep their jobs during a recession.

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Gift cards can help you save money. But nearly half of U.S. adults have at least one unused gift card. Find out the average value of an unused gift card. 

Many people keep their money in their bank accounts. You likely have a checking account for your everyday money needs, and a savings account, where you stash your extra savings. But you may have another form of currency that you’re forgetting about and not putting to use.

I’m talking about gift cards. When was the last time you checked to see if you have any unused gift cards? A recent study found that Americans collectively have $23 billion of unused gift cards. If you have gift cards taking up space in your wallet, now is an excellent time to put them to use.

It’s easy to forget about gift cards

You’ve likely received at least one gift card in the last year. But did you remember to use it? Many people quickly forget about the gift cards that they’ve received. According to a Bankrate study, 47% of U.S. adults have at least one unused gift card, gift voucher, or store credit.

The value of unused gift cards nationwide is $23 billion. The average value is $187 per person. That’s a lot of money! It turns out that high earners are more likely to have gift cards they have yet to use. But those earning $100,000 or more per year and those earning less than $50,000 per year tend to have the highest average value in unused gift cards.

The same study found that about two in five people have been trying to use gift cards more frequently over the past year due to economic concerns. As living costs continue to rise, it’s no surprise that people are looking for ways to make their everyday bills and purchases less costly. Gift cards are one tool that can save you money when making purchases — another tool is coupon apps.

When you forget about gift cards, you waste money. If you forget to use your gift cards for a long time, they may even lose their value. You could use a gift card instead of swiping your credit card for a purchase. Doing this can help you keep more money in your checking account.

Don’t let gift cards go to waste

Based on the findings of the study, you’re not alone if you have a collection of unused gift cards sitting around. But let this article remind you to check your wallet, car, and home for gift cards. If you have a gift card that needs to be used, check the remaining balance and verify whether it has an expiration date. Then, make a plan to spend the money on the card.

Here’s what you need to know about expiration dates and fees: Federal regulations require a gift card to be valid for at least five years from the date of purchase or from the last date additional money was loaded onto the card. What’s more, inactivity fees can only be charged if a card hasn’t been used for at least one year, and such fees can only be charged once per month.

Your best bet is to use your gift cards as soon as possible so the money doesn’t go to waste. If you struggle to remember to use them, consider picking one organized place to stash them. You may be able to purchase household essentials, new clothes, or dinner for your family by using some of the gift cards in your collection.

Yes — life is expensive, but there are always options to save money. Gift cards are one tool that can help you save money on everyday expenses. Check out our personal finance resources for additional ways to keep more money in your pocket.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

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