Why This Finance Expert Says You Need to Invest During a Recession

This could be a chance to get rich, according to Vivian Tu.

Vivian Tu, the financial influencer also known as Your Rich BFF, recently published a video about how you can get rich during a recession. Her advice is to do what the rich are doing and invest. It's a simple strategy, but it's also one of the smartest ways to come out ahead when the economy recovers.

Why Your Rich BFF recommends investing during economic downturns

The economy hasn't been doing well lately, and many experts are predicting a recession in 2023. Economic downturns like this are stressful, and it's natural to hope we can avoid them. However, Tu makes the point that these aren't entirely a bad thing -- in fact, they're an investment opportunity that won't come around very often.

As Tu puts it, "In your adult life, you'll likely only see three to five major economic downturns, and they're gonna be your biggest opportunities to build wealth." That's three to five windows where stock prices are much lower than usual. As seasoned investors know, this is the best time to buy.

Once the economy recovers, investors will see massive returns on the stocks they bought at a discount. The people who didn't invest, on the other hand, will go through the negative effects of the downturn, such as inflation. But they won't get to reap the benefits of the economic recovery.

To address the elephant in the room, it's much easier for rich people to take advantage of this situation than Americans who are living paycheck to paycheck. Tu recognizes this, but she also stresses how valuable it is to get in that "pool of people" who invest during a downturn. She says that if there's anything you can do to increase your income, like getting a second job or a side hustle, it's well worth it.

How and what to invest in

Advice about investing during a recession makes sense, but it often leaves out some crucial details. If you haven't invested before, how do you start? And what do you invest in?

Those are common questions, and Tu answered them in a followup video. To start, you're going to need an investment account. There are two ways you can go here:

• Open a tax-advantaged retirement account, such as an IRA, Roth IRA, or 401(k). These investment accounts help you save money on taxes, but there are early withdrawal penalties if you need to access your money before the minimum withdrawal age (normally 59 1/2).
• Open an individual brokerage account, which you can do with any of the best online stock brokers. These don't have tax advantages, but you can access your money any time without penalties.

As far as what to invest in, Tu recommends index funds. These are exchange-traded funds (ETFs) and mutual funds that invest in an index of stocks, meaning a basket of different companies. Index funds are considered one of the best ways to invest, because they make it quick and easy to invest in a diverse portfolio of stocks.

Another option Tu mentions are target-date retirement funds. This type of fund is optimized for retiring in a specific year. For example, if you want to retire when you're 60 in 2045, you could pick a target-date retirement fund for that year. The fund will start out with more aggressive investments, and then transition to more conservative assets as it gets closer to the target date.

Your Rich BFF is one of the better financial influencers, and she offers quite a bit of sound investing advice. If you can, it's definitely wise to invest while the market is down and reap the rewards when it recovers.