5 Financial Traps To Avoid In A Recession

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So we know that a lot of people have just gotten a $1,200 stimulus check from the us government and it may be burning a hole in your pocket meaning you are just out there looking to spend it but before you go out there and spend your stimulus check on a gucci belt or something like that we’re gonna cover the money traps or money mistakes that you want to avoid in

A recession and for those who are not familiar a recession is simply a period of time where there is a decline in overall economic activity so people are spending less money employers are not looking to bring on new employees or you are seeing a lot of layoffs and in a nutshell it is basically a time of uncertainty and you want to make sure that you are prepared

Financially or at the very least not setting yourself up here for failure now whether or not we are currently in a recession is debatable but if we are in fact entering a recession these are a few of the mistakes that you may want to avoid all right so first of all number one here as we mentioned earlier on the biggest mistake that you have to avoid right now is

Wasting your stimulus check if you did in fact receive one and it’s important to remember what the purpose of these checks actually were and it was essentially a way to get people money who were in a dire situation and that money is meant to be used towards things like your mortgage or your rent payments or groceries or things like that and this is a pretty shocking

Statistic here but according to gold banking rates they conducted a study that found that 69% of americans have less than $1,000 in savings so for the majority of people who received this stimulus check this is the largest amount of money they have ever really had in their savings and they may be tempted to go out there and spend it but i encourage you to keep in

Mind what the purpose of this check actually was and only use it for emergency type spending now personally i would place this stimulus check money in a completely separate online savings account that way you’re not tempted to spend it you even see that it’s there and you may even forget about it and remember it on a rainy day when you actually need the money

If you leave it sitting there in checking every time you log on to your bank account you’re gonna see that money and if you’re like most people you’re going to be tempted to spend it now rates for savings accounts are extremely low right now based on the federal reserve lowering interest rates but betterment does have a great online savings account that does pay

Probably one of the best rates you are going to see out there right now based on the low deposit required so if you guys want to check that out you can open up a betterment cash reserve savings account with just ten bucks i’ll link up to that down in the description below and this is a great high-yield online savings account and a good place to tuck your stimulus

Check away where you won’t be tempted to spend it now if you do use that link guys i am affiliated with betterment so i may earn a small commission in the process all right so the second big mistake you want to avoid in a recession is taking on more debt and it’s very tempting right now because pretty much all of these retailers and car salesmen and things like that

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Have really good incentives or what appear to be good incentives right now to get you behind the wheel of a new car or to get you to refurnish your entire home because they are struggling right now based on us potentially being in a recession one of the first things people do is stop spending money on their non necessities such as furniture or cars or boats and

Things like that so as a result there are some pretty wild incentives being thrown around right now for example ford is currently offering no payments for up to six months if you purchase a new vehicle and while that may sound tempting this is not the time to go out there and buy a new car and take on a larger monthly payment and i know that a lot of people are

Currently on unemployment and based on the additional money being kicked in i’ve heard from a lot of people that they are currently making more money unemployed than they were ever making while they were employed and while that is great you do have to remember this is a very temporary situation and you can’t inflate your lifestyle based on six months of increased

Earnings so avoid taking on more debt at all costs don’t go out there and buy a new car and as tempting as it may seem to take advantage of some of these financing offers this is just not the time where you want to be increasing your monthly payments based on the level of uncertainty so the third money mistake you want to avoid in a recession is something called

Lump sum investing and that is essentially when you take a large sum of money and you put it into the market all at once rather than putting your money into the market over a longer period of time and so the problem with lump sum investing really at any point in time is that when you do this you no longer have this opportunity to average down if the stock or that

Fund begins to trade lower and at a time like this when the markets are moving up one day and down the next this is not a time where you want to just randomly dump all of your money into the market at one point in time and i’m going to show you guys an example of why you wouldn’t want to do this so let’s say you wanted to buy some airline stocks based on the sell-off

That began back in february well from february to march shares of american airline stock fell around 50 percent from $30 per share down to $15 and a lot of people looking at stocks said wow that looks like one heck of a deal so let’s say for example at $15 per share you took all the money that you wanted to invest and dumped it all right into american airlines

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Stock well even after that happened the stock continued to fall and it actually fell to a low of nine dollars and nine cents per share and if you dumped all of your money in at $15 per share well from 15 dollars down to nine dollars and ninety percent of the value of what you had invested now on the other hand if you were just to invest a small amount of money

Every single week rather than lump sum investing you would be able to average down with that position and essentially lower your cost basis so you’d buy a couple shares at 15 a couple shares at 13 a couple shares at 10 maybe you grabbed a few at 9 and as a result you are lowering the average price that you’ve paid for these shares so if you are investing at a time

Like this which is generally a good idea avoid dumping all of your money into the market at once and instead follow the strategy here of dollar cost averaging also guys if you are enjoying the video so far all that i ask is that you go ahead and drop a like for the youtube algorithm it helps out and allows this video to be shared with more people so moving on now

Number four the fourth mistake people make in a recession is pulling out of the market and essentially moving into cash and this has been happening over the last couple of weeks that is why the markets are down 20 or 30 percent right now and that is because more people are selling then there are buying which increases the supply of shares going to the market and

Lowers the price because of less demand so a lot of people during times of uncertainty want to be in cash because it’s certain the price doesn’t change but the problem is you are taking a massive loss in most cases by selling at a time like this and if there’s anything we’ve seen over the last couple of weeks here it’s that the stock market can change very quickly

We saw what has been so far the shortest bear market in history because just a couple of weeks after it began stocks rallied over 20% officially exiting bear market territory now is that going to continue long term nobody knows for sure but if it does and you sold out at the bottom that was a bad time to sell and you missed out on that 20 plus percent rally that

Happened immediately after so unless you’re in dire straits where you need to sell your stocks to pay rent or pay your mortgage or pay for your utility bills this is not a time at all that you would want to sell any stocks or bonds or investments like that that are currently down and lastly here number five the final mistake people often make in a recession is one

Of the most costly mistakes that you can make long term and that is skipping your retirement contributions so a lot of people are looking at their 401k right now and they’re seeing that they are down massively and based on psychology they say hey you know what i’m down i’m frustrated i’ve had a paper loss here in terms of my return i don’t want to put any more

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Money into my 401k because i don’t want to lose it and while that does sound right in your head in terms of the right move financially that is pretty much the equivalent of shooting yourself in the foot because right now you are able to get shares of companies at a massive discount compared to where they were trading at just a couple of months ago and most people

Are pretty much agreeing that this is going to be a very short recession if we do in fact enter one because it was based on this black swan event that nobody saw coming so after this is all over after the world opens up again we should return to a prosperous growing economy and the stock market should reflect that so for example if you look at the s&p 500 over

The last year it traded at a high of around $3,400 and at the peak of pessimism over the last couple of months it dropped to a low of about 2200 dollars so that means that you are able to buy shares of the 500 largest publicly traded companies in the u.s. collectively at about a 35 percent discount and the crazy thing is here is people are willing to buy shares of

Stocks at all-time highs but as soon as they go on sale and you’re getting a better bang for your buck people don’t want to buy them but right now you’re getting them at a massive discount compared to where they traded at earlier on this year now keep in mind that returns with the stock market are never guaranteed but over the last 90 years the average annualized

Return from the s&p 500 has been nine point eight percent per year so over the long-term looking at a large sample of data the stock market is a great way to grow your money and when you invest during a time like this you are getting a substantially better bang for your buck so this would be one of the worst possible times to stop contributing to a long term

Investment like a 401k but anyways guys that’s going to wrap up this video i hope you enjoyed it if you made it all the way to the end feel free to share this video with a friend or family member who may enjoy it as well or somebody who may be out there making some of these financial mistakes themselves and lastly if you want to get two free stocks we bolas currently

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Great commission free brokerage for beginners looking to invest in the stock market i am affiliated with weeble so i may earn a small commission if you decide to use that link but thanks so much for watching guys subscribe and hit that bell if you haven’t already and i will see you in the next video

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5 Financial Traps To Avoid In A Recession By Ryan Scribner

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