Where Americans Plan To Invest During an Economic Downturn — And Where Experts Disagree
Written by
Jacob Wade
Edited by
Amen Oyiboke
Commitment to Our Readers
GOBankingRates' editorial team is committed to bringing you unbiased reviews and information. We use data-driven methodologies to evaluate financial products and services - our reviews and ratings are not influenced by advertisers. You can read more about our editorial guidelines and our products and services review methodology.
20 Years
Helping You Live Richer
Reviewed
by Experts
Trusted by
Millions of Readers
With the stock market down over the past year, banks failing, and layoff announcements coming every month, it might seem like the financial world is falling apart. And while the economy is slowing and the stock market doesn’t look great compared to 2021, this doesn’t mean you should stop investing.
In a recent survey by GOBankingRates, we asked respondents to let us know where they would invest during an economic downturn. The results were a bit surprising, so we consulted with some investing experts to get their take. Here’s where Americans plan to invest while the economy is down, and what experts say they should do instead:
Many Americans Are Not Investing…At All
Survey respondents detailed what they are investing in during an economic downturn. But one of the big surprises is that nearly 32% of Americans are not investing at all right now.
This is understandable considering the current high inflation, recent layoffs, and a growing concern about the state of the economy. But avoiding investing can also hurt individuals in the long run, especially during an economic downturn.
Another problem with not investing right now is that you lose time. Investing over a long period is the most powerful force for growing wealth, as compound interest grows stronger the longer you invest.
Dave Fowler, CFP®, ChFC® and President of High Mountain Financial Coaching disagrees with exiting the market during a downturn.
“[If you] are in a well-diversified portfolio right now – a diversified mix of ETFs, index funds, and mutual funds – [you] should stick with their plan. The long-term trend of the market has always been up. Since the stock market started we have seen world wars, recessions, depressions, gas shortages, [and] rampant inflation – everything we have going on today – yet despite all that the long-term trend has always been up,” he said.
Most Americans Are Just Sitting On Cash
Thirty percent of Americans aren’t participating in the market when the economy takes a nosedive, however, they’re parking their cash in the bank. While this can feel like a safe place to invest in the short term, it can hurt long-term growth.
Yes, high-yield savings accounts are attractive, but they should not be considered a long-term investment. Parking short-term cash reserves in the bank is fine, but for long-term investing, avoiding the market means you will not be participating in the upside of the market as it recovers.
David Berns, a financial planner at Truadvice Wealth Management, advises against staying out of the market, too. “Money is emotional and human nature is not to invest when things are ‘bad.’ There have been multiple studies done that you want to stay invested, so we can participate in the market recovery. We recommend to clients to stay the course that is suitable for their financial plan,” he said.
Many Americans Are Buying Individual Stocks
Investing in the stock market can net you decent returns over the long run, but only buying individual stocks can add a degree of risk. Owning just a few individual stocks adds concentration risk to your overall portfolio as you are essentially making a bet that these companies will outperform or at least follow the stock market average return.
The issue is that many investors that try to pick stocks can end up with a large loss compared to simply purchasing a fund that owns hundreds of stocks, such as a stock market index fund. Plus, individual stocks can become worthless during a down market — as some recent bank stocks have.
Picking individual companies to invest in can be a great supplemental way to invest a portion of your money, but if you’re on Robinhood trying to find the next meme stock that’s going to pop soon, you are better off avoiding the market altogether.
Take Our Poll: Do You Think AI Will Replace Your Job?
Index Funds Are Historically a Good Investment…But People Are Avoiding Them
Only 12% of respondents stated that they are investing in low-cost index funds during an economic downturn. Index funds are investments that track the underlying performance of a stock market index, such as the S&P 500. They typically come with lower costs than standard mutual funds.
While most respondents are picking individual stocks or avoiding investing altogether, just a small percentage are choosing index funds. For the long-term investor, index funds can be the cornerstone of a great retirement portfolio, but you must invest during the good times and the bad.
“If the money is for retirement or for another longer-term need, investing in the stock market through stocks or low-cost ETFs can be good during a downturn because you are likely buying them ‘on sale,'” said Mike Hunsberger, ChFC®, CFP®, CCFC and owner of Next Mission Financial Planning.
Very Few Americans Are Choosing To Invest In Real Estate
Investing in real estate can be a great long-term strategy for producing income while enjoying home appreciation and tax breaks. You can also scoop up some good deals when the economy isn’t doing so hot. But according to the GOBankingRates survey, less than 11% of Americans would choose to invest in real estate during an economic downturn.
Timing the real estate market is difficult, and while it might seem like things are dropping in price, it can always get worse. Investing in real estate remains a good long-term investment, but investors looking to flip properties to turn them around quickly for a profit might be at risk of losing funds when the economy is in turmoil.
In addition to continual price drops around the country, interest rates are also decreasing demand in the market as mortgage costs have skyrocketed from the low-rate days of 2021. Real estate investing comes with the risk of loss, and in a volatile market, those risks increase.
Bottom Line
Investing while the economy is struggling can feel scary. With terrible financial headlines coming out on the daily, and the market showing red every day, it’s no wonder many don’t want to participate. But investing while things are tough is when wealth can be built because the stock market is on sale. This is why it is important to have an investing strategy that accounts for economic turmoil, allowing you to stick to the plan no matter what happens.
More From GOBankingRates
