Should You Stop Investing When Money Is Tight?

Quick Answer

When your financial situation is tough, it may be a good idea to pause some of your investment contributions. But you may still want to prioritize your retirement and education savings if possible, even if you need to reduce your contributions.

A stressed man staring at his stock performances on his desktop computer, torn between investing and saving in a troubled economy.

When times are tough financially, it's a good idea to reassess your budget and look for areas where you could cut back. But while you may be tempted to stop all investment efforts, it may make sense to keep at it with some goals if your situation allows it.

Here are some considerations to keep in mind as you decide how to handle your current situation while still making your future a priority.

4 Investments You Should Pause During Hard Times

Ultimately, your unique situation will dictate how best to handle your investments during difficult financial times. For example, if the economy is in recession but you have some wiggle room in your individual budget, buying stocks and other investments when prices are down can result in a "discount."

But if your particular financial situation is in poor shape, here are some investments you may want to cut out until you get back on your feet:

  • Individual stocks: Individual stocks can be extremely volatile in the short term, and if you can't afford to lose more money at the moment, it may make sense to focus on safer investments and accounts.
  • Cryptocurrency: Even more volatile than stocks, cryptocurrency can be an incredibly risky bet if your finances are tight. They also typically come with an upfront exchange fee, which can take a bite out of what you ultimately stand to gain.
  • Real estate: Investing in real estate can be costly in terms of closing fees, high interest rates and ongoing repairs and maintenance. If your budget is tight, the last thing you need is more expenses.
  • Other taxable investments: There are a host of other investment securities, such as mutual funds, exchange-traded funds, bonds, options, futures and commodities, that you should consider holding off on. While the risk can vary with each of these, if you need access to that money, it can take several days for brokers to settle a trade and make the cash available for withdrawal.

4 Investments You Should Not Pause During Hard Times

Again, your situation will determine the best approach for you, and if your budget only allows for necessities, you might need to put all investment efforts on hold for now.

But if you have a little flexibility, consider continuing to make contributions to the following, even if you need to reduce how much you save:

  • Retirement accounts: Compound interest can work wonders over the course of several years, and cutting off retirement contributions could cost you big time in the long run. It's especially worth making contributions to an employer-sponsored retirement plan if your employer matches some of your savings—in this case, consider contributing enough to max out the matching contribution.
  • College savings plans: If you're saving into an educational savings plan for one or more of your children, these plans often offer tax advantages that can save you a lot of money over time. Also, depending on where you live, you may qualify for a tax deduction or credit for your contributions, making college savings more appealing than other investment opportunities.
  • Health savings account (HSA): If you qualify for an HSA, you can invest the money you contribute on a tax-free basis and withdraw it for eligible medical expenses. You'll also be able to deduct your contributions from your income when you file taxes. At the very minimum, consider contributing enough to match your typical medical expenses to maximize the tax benefits.
  • Money market accounts: Money market accounts may offer a better return on your cash than a traditional checking or savings account. But unlike other taxable investment accounts, you can typically access your money quickly and easily, giving you a safe and liquid investment.

How to Continue Investing During Hard Times

If you've hit a rough patch, it's important to prioritize your necessary expenses. But depending on your situation, you may be able to continue investing. Here are some steps you can take to manage your current situation and continue to work toward your financial goals:

  • Re-evaluate your budget: Take a look at your expenses and determine whether you can cut back on some discretionary spending and put that money toward your investments. You may consider canceling subscriptions you don't use often or trying to negotiate recurring bills to reduce your costs.
  • Focus on emergency savings: Instead of putting your money toward investments that don't allow easy access to your funds, you may consider working to build your emergency fund to mitigate some of the risks associated with your financial situation.
  • Strip contributions to the bare minimum: Even investing a little every month can have a positive impact on your long-term financial plan. What's more, the habit of investing a little every month can keep your financial goals in focus so that you can easily increase your contributions again when you're ready.
  • Increase your income: If you can, look for opportunities to increase your income by asking for overtime hours or a raise, getting a second job or starting a side hustle. Again, your options may be limited depending on your situation, but be sure to research options that can work for you.

Don't Forget to Prioritize Your Credit During Difficult Times

As you determine which areas of your financial plan to focus on during rough times, don't risk damaging your credit for the sake of investing. If you miss a payment on a loan or credit card, it could damage your credit score, making it more difficult to get approved for credit in the future and steering you toward more expensive loans and cards.

More expensive credit will not only worsen your current situation but can also threaten your ability to invest in the future. With Experian's free credit monitoring service, you'll get access to your FICO® Score and Experian credit report, as well as real-time alerts when changes are made to your report.

As you track your credit regularly, you'll have a better understanding of how your actions impact your score, and you'll also be able to address issues as they come up to avoid further issues.