If you're feeling concerned about a potential recession (and exhausted by the uncertainty surrounding it), you're not alone.
The last year has been tough for investors, and experts have warned that a recession could be looming. Between the Federal Reserve's repeated interest rate hikes, stubbornly high inflation, and now multiple high-profile bank failures, it may now be more likely.
In fact, officials at the Federal Open Market Committee now expect a "mild recession" at some point in 2023, spurred in part by volatility within the banking industry.
While nobody can say for certain what the future holds, there's still reason to be optimistic. Legendary investor Warren Buffett can offer reassuring words to those feeling unnerved about the economy, and there are a few pieces of advice to help keep your money safer.
1. Volatility is only temporary
If we do face a recession later this year, the stock market could take another dip. But if history shows us anything, it's that even the worst economic downturns don't last forever -- and the most patient investors will reap the rewards.
In 2008, Warren Buffett wrote an opinion piece for The New York Times to reassure investors amid the Great Recession."[M]ost certainly, fear is now widespread, gripping even seasoned investors," he wrote. "But fears regarding the long-term prosperity of the nation's many sound companies make no sense. These businesses will indeed suffer earnings hiccups, as they always have. But most major companies will be setting new profit records 5, 10 and 20 years from now."
That prediction rang true, as the market went on to experience the longest bull run in history between 2009 and 2020. Historically, periods of economic growth have generally lasted around four to five years, while downturns, on average, last less than 18 months. So while the market's short-term future is uncertain, its long-term potential is far more promising.
2. Now can be a smart time to buy more
Although it may seem counterintuitive, right now can actually be a good time to invest even more in the stock market.
Many stocks are still priced well below their peaks, and by investing now, you can snag high-quality investments for a fraction of the cost. Then when the market inevitably rebounds, you could potentially see substantial earnings.
"A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful," Buffett wrote in the Times article. Market downturns can be discouraging, especially if prices still have further to fall. But by investing during the low points, you'll be in a fantastic position to take advantage of the upswing.
For example, say you had invested in Amazon (AMZN -1.65%) in late 2008, during its lowest point in the Great Recession. At the time, its price was down more than 65% from its high. But in the following two years alone, you'd have seen returns of more than 370%.
Of course, not all stocks will see Amazon-like returns, and nobody knows what the recovery period after this downturn will look like. But by investing during the slumps, you can earn as much as possible during the rebound.
3. Don't wait too long
When the market is volatile, it can be tempting to wait to invest until it stabilizes. But putting off investing could potentially be a costly move.
The market is forward-looking, so it often rises and falls before the economy. Case in point: All three major market indexes have dipped into a bear market in the last year, despite the fact that we're not officially in a recession yet.
This also means, though, that the market will almost always recover from a downturn ahead of the economy. In fact, in nearly every recession over the past 50 years, the S&P 500 began a new bull market before the economy reached its lowest point, according to analysts from JPMorgan Chase.
Buffett wrote: "I can't predict the short-term movements of the stock market... What is likely, however, is that the market will move higher, perhaps substantially so, well before either sentiment or the economy turns up. So if you wait for the robins, spring will be over."
Volatility and recessions can be daunting, but the right strategy can keep your money safer. By following Warren Buffett's advice of investing consistently during downturns and keeping a long-term outlook, you can ride out the storm and reap the rewards when the market rebounds.
