How to manage your money during a recession

In our previous article “Inflation, recession, stagflation… addressing the elephants in the room”, we introduced the concept of a recession. We sought to understand why the current context seems to edge closer to one. In this article, we will look at what are the best financial practices during times of crisis.
Picture of Grégory Leclercq

Grégory Leclercq

Top 10 tips to cruise past a recession 


  1. Adapt your risk aversion


With higher prices in general and the fact that it is statistically harder to keep or find a new job, the first thing you should do is adapt your thinking to the context and perhaps increase your risk aversion.


2. Spread your assets, including your cash


Since the risk of default—and bankruptcy—is higher in general, you would be wise to understand that not even banks are safe from a crash. Some countries “guarantee” some protection for your savings, but it might not be wise to count on massively indebted governments to bail you out. Spread your assets, even your cash. 


3. Reduce your spendings


Perhaps the most obvious tip of all is to reduce spending. If inflation is 10% annually, why not make the effort to reduce your budget by 10% over a year? This will not compensate for the fact that inflation makes you poorer overall, but it will surely prevent you from getting caught up in too much spending and keep your finances healthy.


4. Budget for higher commodity prices


It might be a good idea to shift your budget in general. During high inflationary periods, commodity prices traditionally shoot. We’ve been seeing this for many reasons over the past two years. This is likely not over and it might be wise for us to anticipate higher budgets for energy and other commodities, including food.


5. Make sure to have an emergency fund


It is always a good idea to have an emergency fund to bail you out of emergencies. This is especially important when you tend to have higher expenses because prices are high and your income doesn’t really follow. To prevent being under too much mental pressure, make sure to have 3 to 6 months of need expenses (food, housing, and other essentials) left aside.


6. Understand job market dynamics


Understand that the job market often suffers during recessions. Unemployment rises as a consequence of more layoffs and less hiring by businesses that are trying to limit their costs. It is also generally harder to get clients because people and businesses tend to spend less. 


7. Anticipate (more) shortages


We have already seen our fair share of shortages, but it might just be wiser to anticipate even more and be prepared. Making sure that you can adapt to any situation is key.


8. Reward yourself in intelligent ways


It is important to reward yourself from time to time. However, it might currently be wiser to do so in ways that cost less. Maybe a trip to the countryside would do you as much good as that expensive trip you planned. You can always go back to that idea in a year or two. 


9. Adapt your investment strategy


Of course, you will have to review your investment strategy. Perhaps not change it, but review your expectations, and make sure that your plans are good for the current context. If you feel like it doesn’t impact it, make sure to go through it anyway.


10. Keep investing


By all means, understand that investing in a recession—where markets are at their lowest—is a golden opportunity for building wealth. Just know that asset prices can still go lower and that it can take them several years to go back to previous all-time highs.

Why investing in a recession is a must

What if I told you that you could double your money in the space of a few years? This sounds good, right? Well, during a recession, the stock market often finds itself 25% or more below its all-time high. On several occasions, the S&P 500 has found itself more than 50% below its all-time high. This happened twice in the 21st century, in 2003 and 2009. Both times, we had been in a ‘bear market’ for several months at least.


If you had invested 10,000$ at the bottom in 2009, you would have doubled your money in about half a year. At that time, the market had plunged 56% from its all-time high back in October 2007. If you had kept your position until today, the 30th of May 2022, your stack would be worth around 60,000$ not adjusted for inflation. This is a great story, and it does not always turn out that great, but you get the idea. 


It is traditionally easier to pick a good investment when ‘shares can only go up’. When the markets are so low and have been crashing for so long, it feels like a turnaround is now due. Of course, this is a bias, because although many assets can benefit from a neo-bull market, not all will be wise long-term investments. Also, prices can still go lower before going up. No one can predict a market bottom, nor a market top. This is why dollar-cost averaging (DCA) will remain your friend.


Even during a recession, you should plan for the long term. Think of it as the ultimate shopping season for great assets at awesome prices. If you think picking up a tracker like the S&P 500 is good for you because it provides great diversification, then scoop some. If you believe in blockchain technology and decentralisation, maybe you should scoop some bitcoin at incredibly low prices. Remember that it is at these prices that your risk is lowest, not when the market seems to be “indestructible” and goes on a green streak.

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Your portfolio and so-called recession-proof assets


Say you anticipate a recession, what should you do with your portfolio? Should you pull out of everything and keep cash only? Does that make sense when some of your positions might already be bleeding hard and you have a long-term strategy? First of all, you should know that no perfect textbook strategy exists for market crashes, high-inflationary periods or recessions. 


Some assets are sometimes called “hedges”, “recession-proof”, “safe-havens” or “stores of value”. However, it would be too easy to dismiss assets as simply being good assets because they have low downside. Real estate, an asset that is typically considered recession-proof, crashes—and sometimes hard—just like we saw in 2008. A lot of fortunes were made and broken in these times. The same could be said for a precious metal such as gold, the asset is often considered as the “ultimate store of value” but typically has an inverted relationship with the stock market. This means that in bull markets, gold tends to lose value. 


During crashes, investors typically look for liquidities at first. They exit their positions before making other investment decisions. This usually causes to crash most markets for a short while. Since any asset has the potential to crash, what’s the ideal strategy? As always: a balanced portfolio, and a long-term plan. If you think the next few months or years are going to pan out in a certain direction, then you can readjust your holdings, but in general, having diversified exposure to assets is a good idea. Let’s take a look at what a diversified portfolio would have looked like if you had invested on January 1st, 2020.



Share of portfolio

Performance to date

Highest drawdown 

(March 2020 crash)

Time to get back to all-time highs (in days)






S&P 500










Crude Oil (Brent)





Vanguard Real Estate ETF







Average = 95.35%

Average = -39.06%



This illustrates quite well everything we have been talking about. Although gold has been a pretty steady asset with only a 4% downside during the 2020 black-swan event, being only exposed to gold, or real estate for that matter, would have meant leaving most of the gains on the table. Note however that the Vanguard Real Estate ETF (VNQ) picked for simplicity’s sake comprises industrial and commercial real estate which have taken a major hit post-pandemic. Residential real estate performed much better during that period.


You can see how diversifying a portfolio really averages all parameters. How much it yields, how much it crashes, and how long it takes to recover from a crash. These numbers are not representative of long-term results, but they give a good reference for what to expect if the market turned upside down for a while.


Key takeaway


The only real takeaway from this is perhaps that the single most important thing to do in a recession is to be aware, so you can adapt. If your portfolio is already diversified enough, and you have long-term goals, you have nothing to worry about. However, if for some reason you count on having more cash at your disposal, make sure to review your strategy, as well as your cash flow, and to protect yourself from too much exposure, including to the banks.

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