Put bluntly, cash can help during a recession because it's not stocks. While the stock market often picks up steam during the recovery phase, during the recession itself, stocks may plunge to new record lows or stagnate.
While no investment is guaranteed to be recession-proof, some tend to perform better than others during downturns. These include health care and consumer staples stocks (or funds tracking those sectors), large-cap stocks and income investments.
Liquidity. Your biggest risk in a recession is the loss of your job, if you're still employed or semi-employed. If you need to tap your savings for living expenses, a cash account is your best bet. Stocks tend to suffer in a recession, and you don't want to have to sell stocks in a falling market.
Recessions typically go hand in hand with higher unemployment, and finding a new job may not happen quickly. Catherine Valega, a CFP and wealth consultant at Green Bee Advisory in Winchester, Massachusetts, suggests keeping 12 to 24 months of expenses in cash.
For example, you'll want to avoid becoming a co-signer on a loan, taking out an adjustable-rate mortgage (ARM), or taking on new debt. Workers considering quitting their jobs should prepare for a longer search if they decide to find a new one later.
Bank accounts are great for keeping cash to pay your monthly bills or for short- to medium-term savings goals. But most people are better off investing longer-term savings, even if a recession is on the horizon.
Because of how precious cash can be during times of financial stress, many have said that cash is king. The phrase means that having liquid funds available can be vital because of the flexibility it provides during a crisis.
In general, prices tend to fall during a recession. This is because people are buying less, and businesses are selling less. However, some items may become more expensive during a recession. For example, food and gas prices may increase if there's an increase in demand or a decrease in supply.
Should I even have cash right now considering that? You should, pros say — and the real question should be how much. Pros say you should have somewhere between 3-12 months of essential expenses socked away somewhere safe like a high-yield savings account — see the highest paying savings accounts you may get here.
White collar workers would be hit harder than blue collar workers if the United States enters a recession soon, according to one economist, who said businesses have undergone a dramatic restructuring after the pandemic.
Carry $100 to $300
“We would recommend between $100 to $300 of cash in your wallet, but also having a reserve of $1,000 or so in a safe at home,” Anderson says. Depending on your spending habits, a couple hundred dollars may be more than enough for your daily expenses or not enough.
Most financial experts end up suggesting you need a cash stash equal to six months of expenses: If you need $5,000 to survive every month, save $30,000. Personal finance guru Suze Orman advises an eight-month emergency fund because that's about how long it takes the average person to find a job.
How much is too much cash in savings? An amount exceeding $250,000 could be considered too much cash to have in a savings account. That's because $250,000 is the limit for standard deposit insurance coverage per depositor, per FDIC-insured bank, per ownership category.
Key Takeaways. Savings accounts are a safe place to keep your money because all deposits made by consumers are guaranteed by the FDIC for bank accounts or the NCUA for credit union accounts. Certificates of deposit (CDs) issued by banks and credit unions also carry deposit insurance.
Cash may be safe, but it's losing value to inflation. How can you invest it while minimizing risk in your portfolio? Investors have always wondered how much cash to keep on hand, relative to their investments.
Invest in recession-proof industries.
Fear of buying the wrong stock can be mitigated by investing in established, well-known businesses. Investors may want to consider sectors that generally do well in an economic slowdown, such as consumer staples, utilities and healthcare.
Ultimately, cash may in fact disappear. But it's mostly a question of where and when. While it may disappear in some countries, it might remain in others. And if it ultimately happens in 50 or 100 or more years, it won't matter much to anyone who's alive today.
Unfortunately, eliminating cash will likely do little to reduce crime as there are multiple ways to circumvent the need for cash, and even worse, cutting off cash may just lead criminal organizations to innovate and use pre-paid gift cards, digital currency, or bank checks to elude law enforcement.
Current predictions point towards 2024 being the year when Australia can effectively go cashless, and Australian consumers seem to concur. In fact, 80% of Australians expect that smartphone payments will become the norm by 2022, the Westpac Cash Free Report tells us.