We're only halfway through the year, and 2020 has already been an intense rollercoaster ride. The U.S. officially entered a recession back in February, according to the National Bureau of Economic Research, but the stock market has been surging in recent weeks.
With many states reopening and millions of Americans going back to work, some people are hopeful that this means the economy is getting back on track. However, there has also been a huge spike in the number of COVID-19 cases since businesses started reopening, which doesn't bode well for Americans' health or the economy.
New research also shows that the majority of Americans are pessimistic about the country's economic future. Nearly three-quarters (72%) of U.S. adults believe this recession will continue until at least next year, according to a recent survey from Simplywise, and there are a few things you should do to make sure the recession doesn't devastate your investments.
Is another stock market crash on the way?
First, keep in mind that the economy and the stock market don't always go hand-in-hand. It is possible to be in a recession while the stock market is flourishing, for example, so an economic downturn doesn't always indicate a stock market downturn is on the way.
However, the two are often intertwined. If businesses shut down again to mitigate the spread of COVID-19, that could potentially lead to another stock market crash. So even if your investments are thriving right now, there's a chance that may not last much longer.
Because the stock market can be so unpredictable, it's wise to avoid trying to time the market. Timing the market involves selling your investments the moment before a crash then buying again when stock prices hit rock bottom. Even the experts find it nearly impossible to achieve that kind of precise timing, and buying or selling at the wrong time could be a costly mistake.
Your best bet, then, is to simply continue investing no matter what happens with the stock market or the economy. By taking a long-term strategic approach, it won't matter what happens in the short term. Even if this recession lasts another year or more, it's wise to keep investing like usual.
How to invest for the long term
Investing for the long term means you don't need to worry about pulling your money out of the stock market or finding the perfect moment to start investing. Your investments could take a hit in the short term if the stock market takes a turn for the worse, but as long as you're diversifying your portfolio properly, your investments should bounce back eventually.
Diversifying is key to surviving a recession or a stock market crash. By putting all your eggs in one basket, you risk losing a lot of money if your investments don't pull through a rough patch. But by spreading your money across various stocks, bonds, or other securities, your savings are more protected against the stock market's wild ups and downs.
Right now is a good opportunity to double-check that your investments are allocated properly. If you're nearing retirement age, for example, you'll likely want to invest more in conservative investments like bonds in case there is another market crash. It's crucial to make any adjustments before the market falls, though, because if you wait until stock prices drop to begin selling your investments, you'll already be losing money.
On the other hand, if you're not retiring for decades and have plenty of time to ride out any storms, investing more aggressively may be a smart move. Stocks typically have much higher average rates of return than more conservative investments like bonds, so although they're inherently riskier, they can also help your investments grow faster.
Nobody knows just how long this recession will last, and there's a chance things could get worse before they get better. But as long as you're investing in the right places and taking a long-term strategic approach, it won't matter what the stock market does right now.