We're in a recession, which means you'll need to be even more careful than usual when it comes to investing your money. Now to be clear, investing during a recession is a smart move that could pay off in the long run. But if you're going to go this route, be sure to steer clear of the following mistakes.
1. Dumping your stocks the moment they lose value
Stocks can be volatile during periods when the economy is thriving, so in a recession, their value can swing even more. And while seeing your portfolio tank on screen or on paper can be extremely upsetting, one thing you must remember is that you don't lose money during a recession until you actually go and sell your investments at a loss.
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As such, unloading stocks the moment they falter is a bad idea. Instead, take losses on paper or on screen in stride, and prepare to see a lot of them. And if that's something you can't handle, pledge not to check your portfolio balance more than once a month, if that. There's really no need to access your balance every day, and doing so could tempt you to make some rash decisions that ultimately hurt you financially.
2. Trying to snag the lowest stock price
Stock values can decline during a recession, which means that while you may be looking at losses on screen or on paper, you also have an opportunity to buy new stocks at a relative discount. But if your goal is to snag the absolute lowest stock prices out there, you're likely to fail.
Back in mid-March, when stocks plunged into bear market territory, some investors held off on buying, thinking they'd wait for the market to bottom out even more. Only that never happened. Instead, stock values have been climbing since March. Therefore, if you see a stock on your wish list available at a discount, don't wait too long to pull the trigger on buying it, or you might lose the opportunity for good. Rather than worry about whether you're getting the lowest price for it, ask yourself whether you're getting a lower price than before, and whether that stock is likely to go up.
3. Not having a diverse enough portfolio
Putting the bulk of your money into a handful of stocks is a risky thing to do in general, but during a recession, even more so. Having a diversified portfolio is essential to investing during a recession, so if you don't have a solid mix of stocks right now, take the opportunity to make some changes -- before the market potentially crumbles again later on in the year.
If you're not sure how to diversify, you can simplify things by investing in index funds. An S&P 500 index fund, for example, essentially lets you invest in the 500 largest companies trading on the market today.
Some people shy away from investing during recessions, but if you're sitting on a solid emergency fund and therefore have the cash to spare, putting money into stocks in the coming months is a move that could make you wealthy in the long run. Just be sure to avoid the above mistakes at all costs.
