You need money in savings — but not too much.
More than half of Americans are concerned about a market crash or impending recession, according to a new Allianz Life Quarterly Market Perceptions Study — and 54% say they’re keeping more money than they should in cash because of recession concerns.
How much should you have in cash? You certainly need some money in cash in case of an emergency, pros say. “At least 6 to 12 months of an emergency fund is adequate,” says certified financial planner Joe Favorito at Landmark Wealth Management. While it’s generally a good idea to have a liquid emergency fund as well as some cash on hand for other expenses, you don’t want to have a stash of cash tucked underneath your mattress.
Once you have an emergency fund in place, assuming you have a stable job, there’s no need to change your cash or savings allocation. “It should all be based on your long term plans,” says Favorito. “Continue to dollar cost average into your employer retirement accounts and continue saving for your financial goals as if no recession is coming,” says certified financial planner Bruce Primeau at Summit Wealth Advocates.
Recessions are often characterized by layoffs, higher rates of unemployment and businesses with lower sales, so your emergency fund should work like an insurance policy should you personally face any of these risks. “The amount you have saved should increase if the risk increases. Think about your worst case scenario in terms of time to get a new job that covers your essential expenses and that should be the amount of your emergency fund,” says Segarra.
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