Concerns are rising that the economy is at risk of slipping into a “double dip” recession but what exactly does that mean? Basically it means when Gross Domestic Product (GDP) growth slides back to negative after a quarter or two of positive growth. In other words, a recession that is followed by a brief period of growth followed by a recession. The cause varies but includes a slowdown in demand for goods or services because of layoffs and spending cuts from the previous downturn.
So what can you do to protect yourself from a double dip recession? Below are 5 tips:
- Have an emergency fund of at least 6-7 months. Have plenty of cash in a FDIC insured account. Save as much as you can.
- Live within your means. This is not the time to go into debt.
- Have more than one source of income.
- Have a long-term (>5 years) mind-set with investments (otherwise, you should not own individual stocks). For example, if the stock market drops, you won’t lose anything if you don’t sell. In fact, think of the stock market like a clothing store. Would you prefer to pay retail price or wait until a big sale is happening and you can buy for ½ price? This is the time to buy stock at ½ price. Warren Buffett says “be greedy when others are fearful”. Investors are feeling pretty fearful now.
- Diversify, diversify, and diversify. If you do invest, don’t put all your eggs in the same basket.