3 Brokerage Account Mistakes to Avoid During a Recession

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  • Some people shy away from investing during a recession.
  • Others try to chase lows and wind up missing out.
  • It's a good idea to invest for the long term, so if some of your stocks lose value, try to resist the urge to sell at a loss.

You don't want to fall victim to these.

Will a recession strike in 2023? That's the big question on a lot of people's minds.

The Federal Reserve has been hiking up interest rates in an effort to slow the pace of inflation. Its hope is that by making it more expensive to borrow, whether via loans or credit cards, consumer spending will start to decline. Once that happens, it could narrow the gap between supply and demand that's been causing living costs to soar.

But if consumer spending declines to an extreme, it could be enough to fuel a recession. And that could lead to a host of consequences, from rampant unemployment to stock market declines.

If a recession happens, it could make for a tough situation for investors. But here are some mistakes you can't afford to make in your brokerage account during a recession.

1. Dumping stocks because they've lost value

It's natural for stock values to decline during periods of economic turbulence. But one thing you really don't want to do is start selling off stocks in your brokerage account because their value is down compared to what you bought them at.

If you sell stocks for a lower price than what you paid for them, you'll lock in a loss and make it official. If you sit tight and wait things out, you might find that the value of your stocks recovers fully in time, whether it's within one year, two years, or five.

Now ideally, the money you have in your brokerage account is money you won't need to tap for emergencies. As long as that's the case, it shouldn't really be a problem to leave your investments alone if things take a turn for the worse.

2. Not investing because you're scared of losses

It's easy to see why you might be scared to invest at a time when the U.S. economy is in a slump and the stock market is volatile. But buying stocks when their value is down is actually a great thing -- it means you're getting a discount, the same way you would if you were to buy an overstocked item at a retail store for 40% off.

3. Trying to buy stocks at their absolute lowest points

If you're going to invest during a period of economic instability, your goal might be to scoop up stocks when they're at their absolute lowest. But if you try to time the market like that, you could end up missing out on some lucrative opportunities.

Even seasoned investors struggle to time the market perfectly. So if you're a newer investor, don't assume you'll be able to pull it off.

A better bet is generally to keep investing at consistent intervals -- even if we're in the midst of a recession. And remember, it doesn't matter if you're buying a stock at its lowest point -- it only matters if that stock's value eventually goes up.

Investing during a recession can be a tricky thing. But knowing what blunders to steer clear of could help you avoid a world of regret.

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