Where Should I Put My Money When There’s Bad Economic News?

With bad economic news leading the headlines as of late, many of us are wondering, “Where should I put my money?” If you’re a HerMoney Podcast listener, the advice you’ve heard here most often is stay the course. These days, many of us are feeling uncertain about our future financial plans, which is why Karen Finerman — who, alongside our CEO Jean Chatzky leads our investing club for women, InvestingFixx — says that staying the course is more important now than ever. 

So far in 2023 we’ve heard from countless CEOs and economists with dire projections: Around two-thirds of economists at 23 of the country’s largest financial institutions (UBS, Barclay’s, etc.) said they expect an economic downturn in 2023. Investor Michael Burry of “The Big Short” fame says we’re headed for a recession this year. Bank of America CEO Brian Moynihan has said we’re likely to see a recession in the third quarter of 2023. And in his annual letter, JP Morgan Chase CEO Jamie Dimon said the banking crisis is not over, “and even when it is behind us, there will be repercussions from it for years to come.”

First of all, let’s take a deep breath. With all this uncertainty, it’s important that we 1) don’t let our emotions get the best of us and 2) focus on staying the course. 

“I don’t change my strategy on Wall Street predictions,” Finerman says, when asked about possible grim times ahead. And since one strategy is to buy when the sentiment is negative, that the mood hasn’t been this bad in years may actually be a contra-indicator to that sentiment. “It’s too hard to time stocks — you have to know when to sell, when to buy back in, and you need to have made enough between the sell and the buy to pay taxes. I occasionally buy puts on the market or short QQQ’s (as I am now) because I think the big cap tech names have run up so fast in the last three weeks. But that is a trade just around the edges.” (The Invesco QQQ tracks the Nasdaq 100 Index.)

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It’s human nature to want to know what the bad news is so we can prepare for what’s to come, says Crystal Rau, a certified financial planner (CFP) for Beyond Balanced Financial. “However, when it comes to investing for the long term, it’s so important to have a strategy and then stay laser-focused on that strategy. Sure, adjustments can be made here and there, but the overall strategy remains the same. If you look at a historical timeline of the media headlines compared to the market, you’ll be shocked to see that while headlines may have a temporary effect on the markets, the market keeps the steady pace of an upward trajectory.”

There is always going to be some type of bad news out there, cautions David Barfield, a CFP at Datapoint Financial Planning. “Doom and gloom headlines keep people watching, clicking, and reading,” he says. But thankfully, for long-term investors with properly diversified portfolios based on age, risk tolerance, and risk capacity, it’s all just background noise.

If The Economic Indicators Are Bad, Where Should I Put My Money? 

Unfortunately, bad news can create fear and anxiety which leads to poor decision-making with your investments, Rau cautions. “If you hop out of equities, how do you know the right time to jump back in before you miss the rebound?” she asks, stressing that this is just one of the reasons it’s so important to work with an advisor. “While a lot of people think that bonds may be the safer route, bonds can be just as risky as equities. If you go all cash, then you have to worry about inflation risk.” 

So what’s the answer? After making sure you have enough cash on the sidelines so that you won’t have to sell into a down market — a number that represents a few months worth of living expenses for those of us not in retirement and drawing from our portfolios and a couple of years worth of cash for those who are — you keep on keeping on. Meaning? Set an asset allocation that works for your age and risk tolerance and then stick to it. And if you’re not sure what that should be, it’s time to think about meeting with a financial advisor. 

What About Timing The Markets?

Timing the markets? It. Does. Not. Work. “Attempting to allocate financial resources based on good, bad, or indifferent news is just gambling,” Barfield says. 

If you’re saving for a short-term goal, like a down-payment on a home you’d like to purchase in the next three to five years, a car, or maybe a big vacation, the money should be in a high-yield savings account (under the FDIC-insured limit of $250,000 per depositor) or in very short-term bonds and cash equivalents like CDs or a government money market fund, Barfield suggests. 

“But the long-term investment strategy should not change based on any news, good or bad,” he says. “The stock market generally has two bad years out of every ten. Just drive through the storm, keep dollar-cost-averaging into the market, and rebalance back to your target allocation when the portfolio gets out of alignment.”

Should My Strategy Vary According To My Age? 

“My fundamental investment strategy (e.g., the investments I recommend) does not change based on someone’s age,” Barfield says. “However, the percentage of stocks vs. bonds and the amount of cash in the portfolio will certainly look different depending on age — or more specifically, depending on the number of years before the money is needed.” For instance, someone in or very near retirement will want more cash and cash equivalents in their portfolio than someone who is decades away from retirement.

People who are in their 60s are typically either in retirement or approaching retirement, so in general their portfolio shouldn’t have a lot of risk, Rau explains. “But we also have 60-year-olds who enjoy working part-time, who still have income coming in from multiple sources, and can afford to take on more risk in their portfolio. At the end of the day, a strategy should be designed around somebody’s goals, not solely based on their age,” she says. 

Speaking of risk, a survey HerMoney did last year with the Alliance for Lifetime Income survey showed that just 12% of women actually consider themselves to be “risk-averse” investors — and nearly two-thirds (62%) said they’re bigger risk takers than their parents, and more than a third (35%) said they’re bigger risk takers than their partners. 

No matter your appetite for risk, the most important thing to keep in mind with your investments is that you don’t take the “set it and forget it” philosophy too far. No, this  doesn’t mean you have to rework your portfolio every month, but it does mean you’ll need to remain aware of the many risks out there, and how they may impact your investment strategy and risk tolerance. That’s particularly true in our current environment, where change is constant.