Should You Stop Investing in a Brokerage Account Due to Recession Fears?

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KEY POINTS

  • Many financial experts think a recession is on the horizon.
  • You shouldn't stop investing because you fear a downturn is coming, but you may want to cut back if your savings need a boost.


Recessions can be scary. Is it time to put your investing plans on pause?

Inflation has, for months on end, been driving living costs upward. And now, the Federal Reserve is now desperately trying to tame inflation and give consumers relief via a series of interest rate hikes.

The logic there is as follows: If borrowing becomes more expensive, consumers should start cutting back on spending. That should, in turn, narrow the gap between supply and demand that spurred this bout of rampant inflation in the first place.

But since the Fed is raising interest rates quite aggressively, the fear among economists is that its actions could end up fueling a full-blown recession -- one where job losses increase in a very notable way. And that's an unsettling thought.

If you're concerned about a looming recession, you may be inclined to stop putting money into your brokerage account. Though recessions don't always go hand-in-hand with stock market downturns, they can. Plus, you might need the money you're investing to cover some of your essential bills if you lose your job.

But should recession fears stop you from investing? Or should you push past those fears and keep at it?

What do your finances look like?

The money in your brokerage account is money you should have earmarked for a far-off goal, like retirement. By contrast, the money you have in your savings account is money you should have earmarked for emergencies -- things like home repairs, medical bills, or a layoff.

If you're in a strong place with regard to your savings -- meaning, you have enough money in the bank to cover several full months of living expenses -- then there's no need to stop putting your extra money into your brokerage account. But if your savings could use work, then it's wise to stop investing for a bit of time and instead beef up your emergency fund so you have enough money to cover at least three full months of living costs.

Meanwhile, if your savings look great, then there's no need to cut back on investing just because you're worried a recession might cause the market to dip. First of all, that may not even happen. And third of all, if you're not planning to cash out your investments in your brokerage account for many years, then a near-term blip caused by a recession shouldn't really matter.

Stick with your plan

If you're in the habit of investing $100 a month on a consistent basis, and your savings look good, then it's wise to stick with that pan -- even if a recession hits. The sooner you put your money to work by investing it, the more time you give it to grow. And besides, if a recession does hit in the near term, it could be short-lived, and it could also be followed by a period of soaring market growth. And you don't want to end up kicking yourself for having missed out on that opportunity.

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