Americans Concerned About Market Crash and Recession

According to a recent study by Allianz Life, more than half (53%) of Americans are worried about a potential market crash or recession. Additionally, 54% of individuals are keeping a larger amount of cash than necessary due to these concerns.

Keeping excessive cash can lead to financial losses in the long run. Kelly LaVigne, the Vice President of Consumer Insights at Allianz Life, explains that cash or low-interest-bearing accounts do not keep up with the rising cost of living. It's important to note that there are savings accounts available that offer competitive interest rates of 5% or more, making it unnecessary to keep cash in a low-paying account.

Financial experts recommend maintaining a certain amount of cash as part of an emergency fund. Certified Financial Planner, Joe Favorito, suggests having at least 6 to 12 months' worth of living expenses in an emergency fund. However, it is not advisable to hoard cash by keeping it hidden at home.

The current landscape offers higher interest rates on savings accounts compared to the past 15 years. Bobbi Rebell, founder of Financial Wellness Strategies, suggests that with some research and shopping around, individuals can find money market accounts that offer returns above 5% while still maintaining liquidity. This makes keeping cash more attractive as an investment option.

Once you have established an emergency fund and have a stable job, it is unnecessary to make changes to your allocation of cash and savings. Certified Financial Planner, Bruce Primeau, advises that your decision should be based on your long-term plans. It is essential to continue saving for retirement and other financial goals as if a recession were not imminent.

Should You Increase Your Cash Holdings if You're Worried About a Market Crash or Recession?

Recessions are unpredictable (and some may argue we're already in one), but leaning on cash allocations in an effort to time recessions and poor markets is a losing game. It is advisable to let your long-term plan and personal circumstances dictate your allocation, including how much cash you hold. It is recommended to continue to dollar-cost average on the way down in the event that we do enter a recession, says Matt Bacon, a certified financial planner.

Emergency Fund: Your Insurance Policy

Recessions are often characterized by layoffs, higher rates of unemployment, and businesses with lower sales. Therefore, your emergency fund should work like an insurance policy, should you personally face any of these risks. Segarra suggests increasing the amount you have saved if the risk increases. Think about your worst-case scenario in terms of the time it takes to get a new job that covers your essential expenses. That amount should be the size of your emergency fund.

Stick to Your Long-Term Investment Strategy

Unless your job feels particularly vulnerable, there is no need to change what you're doing in anticipation of a recession. For emergency funds, they should be set aside in a savings or money market account, or short-term CDs. It is important to have quick access to these funds without penalty. When it comes to longer-term investments, it is best not to alter your strategy at all, says Favorito.

Take Advantage of Current Interest Rates

Ahead of a recession, it's important to keep in mind that interest rates may decrease. Therefore, it is advised not to miss out on the chance to take advantage of these current rates while they're available. Consider investing in instruments such as CDs or bonds that can hold onto these rates for extended periods. This will allow potential bond value appreciation as rates decrease, suggests certified financial planner Alonso Rodriguez Segarra at Advise Financial.