Amid the COVID-19 pandemic and what seems like a million other things, we are entering the beginning of what is likely to be an ugly recession. Thankfully, there are a few things you can do to safeguard your finances in the event of another economic collapse. Here is a look at how to recession-proof your retirement savings.
Yes, A Recession is Coming
Personal finance expert Suze Orman has warned that the financial situation in America is about to get significantly worse. Although the coronavirus pandemic is still a large issue in the United States, many of the relief programs put in place to help individuals impacted are coming to an end. The expiring programs include:
- Eviction and foreclosure protection
- $600 unemployment checks
- Student loan forbearance
These things together add up to be more harmful than The Great Recession of 2008. “We have a perfect storm coming right now,” said Orman. “You have all these things happening at once.”
Orman’s biggest piece of advice at this point in time is to stack away as much cash as you can into an emergency fund. However, many Americans are left wondering about what they should do when it comes to investing in and protecting their retirement savings.
How Index ETFs Recession-Proof Your Retirement
Three words: Exchanged Traded Funds (ETFs for short).
ETFs are one of the best ways to help you recession-proof your retirement portfolio. Index ETFs specifically allow you to track indexes like Dow Jones or the S&P. While you cannot invest in an index directly, you can invest in an index ETF. This means you are investing in all the companies within the Dow Jones (or your chosen index).
You can also invest in ETFs that focus solely on one type of business. For instance, there are tech ETFs that allow you to invest in a variety of tech companies at once. There are ETFs for beauty, pet-care brand, energy, retail, you name it!
Because ETFs are typically a good gauge of the market as a whole, your investments will follow the market trends. You may be thinking, “Well, if we are about to go into a recession, why would I want that?”
Well, the truth is, the stock market will likely bounce back and, with it, so will your retirement savings. Even if your ETF investments take a hit at first, they will also grow exponentially when the market starts to climb again. And, unlike investing in specific companies, it isn’t likely it will ever completely tank and you won’t lose everything.
Top-Performing ETFs Last Week[embedded content] ETFs are good investments for most people because, as mentioned above, they typically bounce back with the market. They also provide diversification in your investment portfolio without any additional effort. This year, due to the pandemic, the types of ETFs that are performing well have been altered slightly.
Tech stocks and ETFs have been the standout star performers on the market in 2020. This is because many people are practicing social distancing and staying at home, which means more online shopping and technology use. Other ETFs that seem to be performing well are…
- Biotech ETFs (specifically those looking in COVID treatments and testing)
- Cannabis ETFs
- Energy ETFs
- Healthcare ETFs
If you are interested in learning more about ETFs and how index ETFs can help recession-proof your retirement, consider signing up for The Motley Fool Stock Advisor.