Investing in a Recession: The Certain Path to Profits

For this reason, you are finally doing all the things you are supposed to do -- saving up an ample emergency fund, squirreling away plenty of cash in your savings and checkings accounts, lowering your debts.

Except there is only one problem: you are ignoring the market. You aren't investing. Yes, these are uncertain times. But that's exactly why you need more of your money invested in equities (the stock market).

Some personal finance bloggers are suggesting you still max out your Roth IRA and other retirement investment accounts this year, even though conditions are uncertain. There are many reasons for this, but one of them is the possibility of inflation.

If inflation hits big time within the next few years, as many economic experts expect, your money in the bank will be fundamentally worth less. In an inflationary scenario, everything costs more, and therefore what you have saved up is worth less. Of course, this isn't all bad: rapid inflation also means what you owe will be worth less. So you will still owe $8,000 on your credit card, but that money is now worth functionally less. In theory, at least, inflation can be good for debtors.

If inflation hits, you will be very sorry you did not invest in the market today, while your money is still worth something. Now, I don't claim to know enough about investing -- much less investing during a downturn -- to recommend individual company stocks to you. For the vast majority of folks, trying to "time the market" results in a costly bloodbath.

Instead, I would recommend choosing a few exchange-traded funds (ETFs) with low expense ratios. I personally recommend checking out the Vanguard Energy ETF (VDE), which is a "basket" of many large energy companies. If demand for fuel and energy increases as the world comes out of recession, as I expect it might, you will stand to make very good money. As the world's large economies start humming along again, they will need all the energy they can get their hands on, making this a fairly simple ETF play.

Similarly, I recommend the Vanguard Europe Pacific Fund (VEA) which is a "basket" of many large publicly held companies in Europe and the Pacific/Asia regions of the world. I like this play for one reason: Europe was, in many ways, hit by the recession before us. It stands to reason that it may bounce back economically first, which will send shares of its companies higher... and so this ETF might do well. I also like it because this ETF is super-diversified.

Regardless of where you invest your money, the key is to start now, even if it is with a small amount. If inflation does hit, you will be very pleased that you bought some shares today, rather than tomorrow.

Disclosures: Stocks and ETFs can lose value. At time of publication, the author holds shares of VEA. The author is providing his personal opinion and is not a professional investor, analyst, or financial advisor. Consult a certified financial planner before making any investment decision.