How can you protect your finances during a recession?
International investments reduce your vulnerability to a recession.
Not every country suffers from a recession at the same time. Even when they do, the impact varies. Credit Counselling Society suggests considering international investments, as they can mitigate the impact of a recession on your investments in a particular country.
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The CBOE Volatility Index (VIX), or the “fear index,” is a fitting hedge against a volatile market.
The VIX is widely used to measure market risk. It also indicates the probable market trend (bull or bear) and runs opposite (runs downward in a bull market). As per Paul Tracy, a financial markets expert, it can act as a hedge against volatile swings in the market.
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Switch your lender if the current one is levying an SVR (Standard Variable Rate) during a recession.
SVR comes into play at the end of an initial lending agreement. In such cases, the borrower has to pay a varying rate on their loan, which is higher than the usual rate. Switching to the best deal available would help you save money during a recession.
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Avoid selling investments out of panic in a recession.
A prolonged recession period can propel people to make emotional decisions.But financial experts say that long-term investment strategies take into account various cycles of the market. Investors should calm down and make decisions that won’t cost them in the long run.
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Keeping a high credit score will help you deal with the recession.
A period of recession results in an increased reluctance amongst lenders to give out loans. As per an Investopedia article reviewed by Somer Anderson (a finance professor) keeping an excellent credit score is important for mortgage or credit approval during recession times.
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Curtailing your monthly expenses will help mitigate the effects of a recession.
When there is a recession, there is often a dearth of cash. In such a situation, a Nestegg article suggests cutting down on monthly lifestyle expenses you do not necessarily need. It will help you better tackle the recession.
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Keeping up to six months of expenses in an emergency fund will help you better deal with the recession.
According to Opinium, a research agency, half of the UK workforce does not have an emergency fund to act as a cushion during tough times. Experts suggest this fund should cover groceries, utilities, and other essential expenses.
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Being aggressive while understanding risk tolerance allows investors to gain from recessions.
As per Kent Thune, an investment advisor, investors should not be too aggressive and go all out on stocks during a recession. They must maintain their stock allocation as they had done before the recession period.
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Polishing your skills can land you a side hustle during a recession.
Sahil Vakil, a Chartered Financial Analyst, suggests that learning a new skill and polishing your resume will increase your chances of landing a side gig. Even if there is a chance of a layoff from your primary job, it will ensure that you have a constant stream of income.
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Set up a loss parameter for your investment.
Lynette Lim, Director of Philip Capital Inc, says that people lose more money because they are unwilling to cash out of a losing trade. She suggests setting up a loss parameter. If this is triggered, the investor should sell off the investment.