Should Consumers Save or Invest During a Recession?

In a typical recession, it is best to save and use any exogenous impacts to economic activity and price decreases in assets as a buying opportunity. However, different consumers have different ideas about how to prepare for recessions. Everyone’s game might be different but that doesn’t mean that one way is better than the other.

Current Economic Climate

The US is undoubtedly in a very weird place in regards to current economic uncertainty right now. On the one hand, the stock market and many other asset prices all seem to be going higher. On the other hand, the world is experiencing massive amounts of geopolitical turmoil and genocide, numerous trade negotiations happening, multiple wars going on simultaneously and President Trump is putting up tariffs on many imported consumer items.

What Does This Mean for the Average Consumer?

It means we should all be holding emergency funds (at least 3 months of monthly expenditures in savings) but also making the best use of our cash. The FED has initiated another lowering of interest rates as inflation seems to have cooled and concerns about an economic slowdown slowly starts coming to fruition.

Due to this, it is definitely advised to save more than you would normally. However, there’s a fine line between saving too much and not saving enough.

How Should Consumers Play the Field?

Consumers should be making appropriate use of the opportunity cost of their money right now. This means holding too much cash might not be to your benefit. Any additional savings you can muster should be diversified among assets and commodities, so as to best avoid the diminishing purchasing power of your dollar.

Aside from your emergency savings and any other big-ticket items you plan on purchasing, you should be diversifying with assets (real estate, etc.), commodities (gold and silver specifically) and even looking towards cryptocurrency and equities.

The best investments to make for a highly risk adverse consumer will likely be investing in metals and other commodities (like silver, gold, etc.) as they tend to have staying power during a recession.

Cash is King

During a recession, it is said that cash is King. However, cash is only King if you use it and don’t let opportunities walk you by. If you hold on to cash and never make us of it when the opportunities to buy discounted asset prices arise, you’ll have wasted the potential to capture that buying power from cash.

Saving and Investing

Saving and investing are a matter of personal preference. However, in an ideal world, you’ll have saved up money for the recession so that you can utilize it and invest when you see opportunities for discounted asset prices. This is how it should work but sometimes life doesn’t always go according to plan.