How to Invest During an Economic Downturn

With all of the issues with the economy, many people are wondering where to invest their money. There are several things to consider when making this choice including how much of a risk you are willing to take, and what expenses you need to have money available for.

First, you need to decide how much you can invest. Consider what kinds of expenses you have coming up, if you have anything expensive you need to purchase you should keep some funds accessible to cover the costs. Also, it is a good idea to keep some money in case of job loss. The uncertainty of the economy has led to many people losing their jobs and you should have a back up plan in case you are included in the next round of lay-offs. To be prepared you should have about three months of living expenses, including any loan payments, saved as a minimum. The money you will need for a couple months of expenses and any large expenses you have coming up should be kept in an interest earning bank account where it is FDIC insured. Keeping this money in an insured bank account guarantees you don't lose any money and you will be able to continue to pay any expenses you have even if you lose your income.

The remaining money you have is what you can invest. For your investments there are two main options: certificates of deposit (CDs) or stocks/mutual funds. Certificates of deposit are usually FDIC insured and that way you are guaranteed not to lose any money, however you will have to be able to leave your investment invested for a long time without withdrawing any. Stocks offer a higher rate of return in most cases, however they are not guaranteed and you can definitely lose money if you invest in stocks. The stock market is at a low point now and will most likely go back up, making money for everyone who is invested, but it could take a while, and so investing in the stock market will not give you any better liquidity in the short term, than a CD. A mix between the two may be the best option, giving you a guarantee that part of your investment is safe and a large growth potential for the at risk portion.

In the end, you have to consider your personal situation. When you are making your final decision, your tolerance for risk and need for liquidity are among the most important factors to consider. If you follow these basic guidelines your investing experience is more likely to work out well for you.