As the coronavirus pandemic continues taking over the world, it’s also pushing a global economic recession closer and closer. Whether or not a recession ever comes, its good to know where to place your money in the event one arrives!
What Is A Global Recession?
Often times, many with conflate a global recession with the U.S. Great Depression of the 1930s. They think of bread lines and years of mass unemployment. Thankfully, while a theoretical global recession would be bad, it wouldn’t be as bad as that! A recession is a period with smaller economic activity, one not as bad as a depression. However, it still means businesses closing, lower wages, and higher-than-usual unemployment.
This period won’t be short, but it’s not as scary as an economic depression. Moreover, it always ends and then is followed by the financial state recovering and growing back. So, where should you put money during the crisis to save and earn more?
1. Federal Bond Funds
In a recession, one of the most stable places to put money is in a federal bond fund. After all, many investments become incredibly risky during a recession, due to an increased likelihood that any business might go under. On the other hand, federal bonds are guaranteed by the government. The government even paid them back after the Great Depression.
There are also bond funds investing in mortgages, which are supported by the Government National Mortgage Association and secured by the U.S. government. These are mortgages guaranteed by the Federal Housing Administration (FHA), Veterans Affairs, and other federal housing agencies.
2. Municipal Bond Funds
Another great option are municipal bond funds. They are not as secure and stable as the federal bond funds that are backed up by the government but still safe enough to invest in during a global recession. For those not in the know, municipal bond funds come from state or local governments, instead of the federal government. As such, while they are incredibly safe, municipal bonds are technically less secure.
3. Taxable Corporate Funds
For bigger and better results, choose taxable bond funds by big corporations. Of course, this is a riskier option because there’s no government support, and a company can go under during a recession. However, if you’re okay with the added level of risk, the outcome can be a lot better. Still, while these are not as safe as federal and municipal bonds, it’s important to note that taxable corporate funds are still far more secure than the stock market. And of course, to create the stablest source of income, do your research and choose only high quality bonds.
4. Money Market Funds
Don’t want to invest in bonds but seeking the best place for money during the recession? Well, then money market funds are just for you! These are funds that invest in quick-but-low returning investments, like debt securities such as U.S. Treasury bills and commercial paper. While these are very short-term, typically lasting less than a year, it’s an excellent way to invest one step at a time during a global recession.
5. Dividend Funds
Finally, if you have the money, don’t run away from the stock market entirely. As almost any investor will tell you, those that ride out the storms with stocks in essential or mega-companies (Walmart, Apple, and the like) almost always do better on the other side. Meanwhile, mutual funds focus on high-dividend stocks for great returns with less danger overall.
While living through the recession and financial crisis, don’t forget that you’re not alone. Turn to a financial advisor for the best tips on how to save more and spend less.