What to Know About Recessions and Bumpy Markets | theSkimm
recession rollercoaster

The Story

COVID-19 (the disease caused by the novel coronavirus) is continuing to take its toll.

Shut. It. Down.

Please do. See: “social distancing.” 

I’m already bored at home.

If you need excitement, watch the stock market. It’s been doing its best rollercoaster impression lately. The Dow, S&P 500, and NASDAQ – market indexes investors use to gauge market performance – have all entered bear market territory

What’s a bear market again? 

It’s when a major index drops at least 20% from a recent high. That’s happened to the S&P 500 more than a dozen times in the last century. The last time was during the Great Recession.

So, this means we’re heading toward a recession?

No one knows for sure, but a lot of people are talking about it. Bear markets and recessions often go together. (Psst...a recession is a time of significantly decreased economic activity. Think: low production, job loss, and less consumer spending.) Because when investors get nervous, they’re more likely to sell stocks and hang onto cash. Or buy 'safer' investments, like bonds and gold.

Related: How a Recession Can Affect Your Wallet

Could this recession look like the last one?

Every recession is different. In 2008, the housing market collapsed. COVID-19 is hurting supply and demand: supply because a lot of businesses have halted production and temporarily closed; demand because health scares don’t exactly put people in a shopping mood. On the bright side, some aspects of our economy were more stable pre-virus than they were in 2008. Hi, 50-year low unemployment.

Still feeling panicky.

Understandable, but there’s this: after every bear market, there’s been a longer bull market pushing stock prices back up. Over the long term, stocks have recovered from every major loss and continued climbing.

What do I do about all of this?

If you’re investing for the long-run (that’s years, not months) and have a diversified portfolio, you can probably sit back while the market does its thing. Mental health trick: ‘lose’ the password to your retirement account, so you don’t obsessively refresh.

Related: What Are the Different Types of Investments?

You might also want to check your temperature when it comes to risk tolerance...aka how much the idea of losing money makes you want to throw up. If the big market swings are driving you crazy, you might have the portfolio of a daredevil when that’s not really your style. 

Anything else?

We have some ideas:

  • Check up on your emergency fund. Having three to six months’ worth of take-home pay can help when life hits you where it hurts: your wallet. On avg, recessions last less than a year. But this money is your lifeline if something goes really wrong, like you lose your job or get a big medical bill. If your fund is looking a little low (or non-existent), try to start filling it up. Every dollar counts. 

Related: theSkimm on How to Save More Money, Faster 

  • Review your budget. And see if you can cut back. If self-quarantine life has any highlights, this might be one: you probably aren’t spending as much on things like rides, eating out, and travel. Save what you can.

  • Get ready for a weaker job market. Especially if your industry is especially vulnerable. During recessions, companies might need to cut hours and layoff workers to stay in business. Update your LinkedIn, see who’s hiring, and understand what kind of unemployment insurance you qualify for. 

Related: What You Need to Know About Side Hustles

theSkimm

We’re living in scary times. You can protect your health by social distancing, washing your hands, and following recommendations from the CDC, NIH, and WHO. There are also things you can do to protect your finances. When it comes to your investments, that might mean tuning out the news. For your budget, savings, and job, being proactive is the best medicine.


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