Why you can trust us We may earn money from links on this page, but commission does not influence what we write or the products we recommend. AOL upholds a rigorous editorial process to ensure what we publish is fair, accurate and trustworthy.
Why you can trust us
We may earn money from links on this page, but commission does not influence what we write or the products we recommend. AOL upholds a rigorous editorial process to ensure what we publish is fair, accurate and trustworthy.
5 moves you shouldn't make during a recession: Expert tips for weathering an economic storm
Yahia Barakah August 2, 2025 at 3:19 AM
5 move you shouldn't make during a recession (MoMo Productions via Getty Images)
The Trump administration is back with a new round of tariffs taking effect in August 2025 that will hit most countries with a 10% rate and about 40 nations with 15%. Canada faces 35% on non-trade agreement goods, while Mexico got a temporary reprieve. The Yale Budget Lab estimates this will cost American households an extra $2,400 this year, and companies like Walmart are already warning about price increases.
When trade uncertainty dominates headlines, your first instinct might be to move money around or chase "safer" investments. But financial advisors who've guided clients through multiple economic storms know these knee-jerk reactions usually backfire spectacularly.
Your response during uncertain times matters more than the uncertainty itself. Whether these tariffs trigger broader economic problems or just become another policy footnote, here's what not to do when fear starts driving your financial decisions.
1. Don't panic sell your investments
When markets plummet, our instinct might tell us to get out of the market — and fast. This protective impulse can feel right at the moment, but experts consistently identify it as the costliest mistake investors make.
"The worst mistake anyone can make during a recession or period of increased volatility is to sell everything and move to cash," explains Ben Simerly, CFP and founder of Lakehouse Family Wealth in Cleveland, Ohio. "This is the nightmare scenario, because we simply cannot predict when an upturn might happen. In fact, many financial planning firms teach their planners that the most important job they have is to help clients avoid selling to cash in a downturn."
Nick Davis, CFP and founder of Brindle & Bay Wealth Management in Frisco, Texas, adds that "panic selling not only crystallizes losses, but leads to missed recoveries. Many investors sit on the sidelines waiting for confirmation that it's safe to re-enter, by which time the market has often rebounded significantly. This is how people turn a 20% drop into a 40% mistake."
Rather than sell in a panic, consider these four straightforward tips:
Pause before acting. Give yourself a cooling-off period of up to 48 hours before making any investment decision when the market drops. Use this time to reach out to a financial advisor and discuss your desired action with them.
Remember the value of what you own. Freeman Linde, author, retirement educator and CFP at La Crosse Financial Planning in Onalaska, Wisconsin, explains that quality U.S. companies in your portfolio represent real ownership. "We are owners of shares in the best businesses in the world. The real value of our businesses has not retreated nearly so far, and there is no reason for us to stop being business owners just because everyone else is panicking."
Limit financial news. In 2010, a flash crash led the Dow, one of the main U.S. market trackers, to experience a 9% loss for 36 minutes, only to recover shortly after. Those constantly watching financial news experienced unnecessary panic, while those who checked less frequently barely noticed the blip. That's why you should reduce your consumption of market commentary that might increase anxiety without providing useful information.
Focus on your time horizon. Remind yourself of when you'll actually need this money and whether short-term market movements really matter for those goals. Current market movements aren't as relevant to you if you aren't planning to touch your portfolio for another 10 or 15 years.
Learn more: Hesitating on investing? Here's the $100 decision that transformed my finances
2. Don't change strategies during a downturn
Another major mistake many investors make during recessions is abandoning their established investment approach for something that feels safer.
"The next biggest mistake to avoid is changing strategies in a downturn," warns Ben Simerly. "Many investors, and even advisors, get nervous and change the plan during a downturn. But this removes the ability of the current investments to finish the job investors bought them for in the first place."
Strategies built for long-term growth should account for periodic market drops. When you switch strategies mid-recession, you often lock in losses and position yourself poorly for the eventual recovery.
However, the challenge we face is that emotions like fear can significantly impact our financial decision-making during market downturns. Nick Davis points out that "panic and fear hijack rational thinking. When fear spikes, investors tend to feel short-term pain more strongly and lose sight of long-term potential."
To counter these emotional responses:
Name your feelings. Ben Simerly explains that "fear is natural, and sometimes even healthy. I actually encourage clients to call when they feel fear. Ignoring fear or trying to suppress it just doesn't work. So we work to help clients address the fear, acknowledge it and keep decision-making separate from the emotions."
Focus on what you can control. Shift attention to actions within your power, like adjusting your spending habits or boosting your short-term emergency fund, rather than market movements.
Automate your investments. Set up regular automatic contributions through your investment platform or a robo-advisor to buy investments consistently regardless of market conditions, which naturally implements dollar-cost averaging and helps you smooth out potential losses.
Create a decision framework. Develop simple rules that define when and how you'll make portfolio changes to help you remove in-the-moment emotions from the equation.
Learn more: 7 rock-solid investment picks to secure your retirement nest egg
3. Don't believe that this time is different
Every recession has its unique causes and characteristics, but many investors make the mistake of believing that standard investment principles no longer apply during a particular downturn.
"This is what we call the 'this is different' trap," explains Ben Simerly. "It may be different, but that is not a reason to make a rash decision. Each recession or market crisis is unique. The key then, is that uniqueness is normal, and not a reason to sell everything, or change strategies."
Historical perspective helps us recognize that while each recession has its own flavor, certain economic patterns tend to repeat:
Volatility works both ways. The market's best days often occur near its worst down days. Cashing out during a crash means you might end up missing out on the market's best days.
Sector performance varies. Different industries decline and recover at different rates during recessions and rebounds. This means your technology stocks might struggle while your consumer staples thrive, highlighting why having a diverse portfolio matters.
Media headlines lag. News coverage often remains conservative well into the early stages of recovery. If you wait until headlines turn optimistic to reinvest, you'll likely miss substantial gains, as the media only reports these gains after the fact.
Markets lead economic data. Stock prices typically recover before unemployment numbers or GDP growth improve. Waiting for these trailing indicators to signal "all clear" often means missing the most powerful phase of market recovery.
"Recession means that all markets crash indefinitely" is a misconception investors should avoid, notes Arielle Tucker, CFP and founder of Connected Financial Planning." While the economy may contract, history shows that markets generally recover over time."
During the devastating 1920's Great Depression stocks fell nearly 90%, and the 2008 Great Recession saw stock markets lose over 50%. But patient investors who stayed the course eventually saw complete recoveries and new market highs — though recovery periods took up to almost a decade in the worst cases.
4. Don't follow 'safe' investment trends
When markets get rocky, the temptation to find supposedly safe investments intensifies. You might hear about gold, cryptocurrency, specific sectors or complex products designed to profit from market declines. While diversification always matters, dramatically shifting your strategy based on current headlines rarely pays off.
The tendency to chase what's working right now stems from our psychological need for control when markets feel chaotic. We naturally want to do something — anything — rather than ride out the storm with our existing strategy.
During the dot-com bubble of the early 2000s, investors who frantically chased tech stocks and then sold in panic when prices collapsed suffered steep losses. Meanwhile, those with diversified portfolios weathered the storm much better over time. The lesson was to stick to time-tested investment principles rather than chasing the latest trend.
To avoid this common mistake:
Question the narrative. When you hear about a specific safe investment, maintain healthy skepticism. For example, while gold offers some value stability, its price dropped from just over $1,000 to about $700 during the height of the Great Recession in 2008.
Stick to a diversified portfolio. A properly diversified portfolio should already account for different economic environments by including government-guaranteed assets like Treasury notes and bonds and deposit accounts with stable returns like high-yield savings accounts and certificates of deposits.
Beware of complexity. Economic uncertainty may make some complex investment products seem attractive since they allow you to exit the traditional stock market and its volatility. From trading currencies to investing in commodity futures contracts, these assets come with added complexity that can mask their risks and higher fees to uninitiated investors.
5. Don't keep your cash stagnant
While keeping some cash as an emergency fund makes good sense during economic uncertainty, letting too much money sit idle in low-interest traditional savings accounts can significantly erode its value and purchasing power — especially during periods of high inflation.
Many people retreat entirely to cash during market downturns due to its perceived safety. But even during recessions, your money should continue working for you. While having adequate cash reserves matters during economic uncertainty, excessive cash holdings can actually increase your long-term risk by missing the growth needed to outpace inflation.
Avoid cashing out your investment portfolio during a market crash to benefit from the eventual recovery and consider putting your liquid funds to work with:
High-yield savings accounts (HYSAs). These accounts typically pay higher interest rates than traditional savings as they typically come from online-only banks that pass their overhead savings to you in the form of better yields and lower fees. HYSAs are insured by the Federal Deposit Insurance Corporation (FDIC) for up to $250,000 per bank, so your funds are protected even if the bank fails.
Certificates of deposit (CDs). If you have cash you won't need for a specific period, CDs can offer high yields in exchange for locking your money for terms typically ranging from three months to five years. CDs also come with FDIC insurance of up to $250,000 per bank.
Money market accounts. These FDIC-insured accounts blend the flexibility of checking accounts with the higher yields of savings. They typically offer competitive interest rates and may include check-writing or debit-card privileges, though they usually require higher minimum balances and may charge monthly maintenance fees.
Treasury bills and notes. Issued and backed by the U.S. government, these securities deliver competitive yields with minimal risk. Treasury bills mature in one year or less, while notes carry terms of two to ten years and pay semiannual interest. You can buy both through TreasuryDirect or by using your brokerage account.
How to align your investment plan with your financial goals
Before and during recessions, it's important to ensure your investment strategy still aligns with your personal financial situation and goals. Consider that different life stages typically require different approaches to weathering market volatility.
For younger investors with longer time horizons -
See downturns as opportunities. Market drops let you purchase shares at discounted prices. For example, investing $500 monthly when markets have dropped 20% means you acquire 25% more shares than before the decline, potentially supercharging your returns when markets recover.
Focus on consistent contributions. Regular investing during down markets leverages dollar-cost averaging, where your fixed contribution amount automatically buys more shares when prices are lower and fewer shares when prices are higher. This helps stabilize your overall portfolio performance.
Use tax-advantaged accounts. Maximize contributions to retirement accounts like 401(k)s and IRAs, which offer tax benefits that become even more valuable during market downturns. The tax savings effectively discount your investment costs further during these challenging periods.
For those approaching or in retirement -
Build a cash buffer. Maintain enough liquid assets to cover one to three years of expenses, allowing you to avoid selling your assets during market lows. This cash cushion creates breathing room for your portfolio to recover before you need to tap into it.
Create income streams. Develop multiple sources of retirement income beyond just portfolio withdrawals — such as Social Security, pension payments, annuities, rental income or part-time work — to reduce pressure on your investment portfolio during market downturns.
Consider bucket strategies. Segment your portfolio based on when you'll need the money. This approach helps you mentally separate your immediate needs from your long-term growth assets.
Review withdrawal rates. During market downturns, consider temporarily reducing your portfolio withdrawal rate if possible. Adjusting spending during poor market years can significantly increase the sustainability of your retirement funds compared to rigid withdrawal plans.
Learn more: The 4% retirement rule: Is it time to rethink this popular withdrawal guideline?
How to find the right financial guidance during turbulent times
Having professional guidance can make navigating market volatility significantly less stressful. While not everyone needs a full-service financial advisor, most people benefit from some form of financial guidance during economic uncertainty.
The right financial guidance provides objectivity when emotions run high. When you're worried about your financial future, having someone who isn't emotionally invested in your money can help prevent costly mistakes.
Proper guidance also helps tailor strategies to your specific situation. For example, professional advisors can identify opportunities within market chaos such as tax loss harvesting, which is a strategy that uses your negative assets to offset gains you made elsewhere and lower your overall tax bill.
When choosing a financial advisor, consider these factors:
Fiduciary standard. Look for advisors who are legally obligated to put your interests first.
Fee transparency. Understand exactly how much you'll pay and how your advisor earns money.
Relevant credentials. Check for qualifications like CFP, CFA or other recognized certifications.
Communication style. Find an advisor whose approach is honest, direct and resonates with your preferences.
Crisis experience. Ask about how they've helped clients through previous market downturns.
Learn more: Major red flags to watch out for before choosing a financial advisor
More stories about investing and growing your wealth -
Best investing platforms: Low-cost options to put your money to work
11 common investment fees that eat away at your returns (and how to avoid them)
What is a bear market? How to spot a market downturn — and sail smoothly through one
Is gold a good investment? Pros, cons and when it makes financial sense
Can you really retire with $500,000 in savings and investments?
FAQ: Investing during a recession
Find out more about navigating economic downturns. And take a look at our growing library of personal finance guides that can help you save money, earn money and grow your wealth.
How long do recessions typically last?
Recessions vary in length but typically last between six to 18 months. The National Bureau of Economic Research (NBER) officially determines when a recession begins and ends in the United States. During these periods, economic activity such as GDP, employment and consumer spending typically slows down or contracts, often leading businesses and individuals to tighten budgets. Recovering from a recession generally takes longer as businesses rebuild inventories, rehire workers and consumer confidence gradually returns.
Should I stop investing during a recession?
Continuing to invest during recessions often provides opportunities to buy quality assets at discounted prices. That's why many investors use market downturns to add to their portfolios at lower prices through dollar-cost averaging, which involves investing consistent amounts at regular intervals regardless of market conditions.
Will the stock market always recover after a recession?
Historically, major U.S. market indexes have always bounced back after recessions, though the time it took varies. Recoveries depend on factors like Federal Reserve rate adjustments, returning investor confidence and global economic trends. For instance, the S&P 500 took about four years to recover after the 2008 recession but rebounded within nine months after the COVID-19 downturn. That's why a diversified long-term approach can help you ride out these ups and downs.
Editorial disclaimer: Information on this page is for educational purposes and not investment advice or a recommendation to buy any specific asset or adopt any particular investment strategy. Independently research products and strategies before making any investment decision.
Sources -
State of U.S. Tariffs, the Budget Lab at Yale. Accessed August 01, 2025.
Consumer Confidence Index, the Conference Board. Accessed August 1, 2025.
Consumer Price Index, U.S. Bureau of Labor Statistics. Accessed August 1, 2025.
About the writer
Yahia Barakah is a personal finance writer at AOL with over a decade of experience in finance and investing. As a certified educator in personal finance (CEPF), he combines his economics expertise with a passion for financial literacy to simplify complex retirement, banking and credit topics. He loves empowering people to make informed financial decisions that improve their everyday and long-term wellness. Yahia's expertise has been featured on FinanceBuzz, FX Empire and EarnForex. Based in Florida, he balances his love for finance with freediving, hiking and underwater photography.
Article edited by Kelly Suzan Waggoner
📩 Have thoughts or comments about this story — or ideas on topics you'd like us to cover? Reach out to our team.
Original Article on Source
Source: "AOL Money"
Read More
Source: Astro Blog
Read More >> Full Article on Source: Astro Blog
#LALifestyle #USCelebrities
Why you can trust us We may earn money from links on this page, but commission does not influence what we write or...
