Being unemployed, you feel unmoored, off center, not quite sure what to do with yourself.
You worry about money.
Let’s say you were out of work late in 2018 and the market was in a severe drawdown.
What would you do? Where would you go (with your investments)? Here’s 5 ways you could invest to bolster your income while unemployed and navigate this transitional period.
1. When Things Are Bad, Buy Stocks With Money From Bonds. When Things Are Good, Sell Stocks to Buy Bonds and Go to Cash.
Being unemployed, it’s hard to put new money into the market when anything could happen in the short term.
But when the stocks are down 10-20%, it’s typically a good time to buy. If you have bonds in your portfolio, you can move some of that money into stocks. You don’t, after all, have the income of a job to draw from.
If stocks rise, as they did in the early part of 2019, it may be a good time to take some profits from that risky part of your portfolio and move it to bonds or cash. You’re possibly sacrificing some upside, but you’re also taking risk off the table in case you need that money sooner than later.
2. Buy a High Yield Bond ETF
Stocks go up and down. They’re risky. Being unemployed, you need extra cash without relying on growth in the stock market.
High yield bonds go and up down too, but they could also give you 5-7% in interest while you wait it out.
So if you have money set aside that you don’t need right away you could generate decent cash flow.
I use the Invesco Global Short Term High Yield Bond ETF (PGHY). I like that it’s diversified (global) and short term (less risk). It yields 5.45%.
3. Keep as Much Cash as Possible in a Online Savings Account
Right now you can get a little more than 2% in online savings accounts from Ally, American Express, Discover, Marcus from Goldman Sachs, and a number of others.
If you can, keep only what you need for upcoming bills in your checking account and the rest in online savings.
This will require some management, making sure you have money in your checking when bills are due, but you can squeeze out a few extra dollars each month.
4. Take Profits in an Inherited IRA
If you happen to have an inherited IRA, it’s a good place to lock in gains. You don’t have to pay capital gains taxes on them, but because you’re required to take distributions each year you don’t get penalized for taking the money out like you would in a Roth or traditional IRA.
You do have to pay income taxes on what you take out.
5. Sell What You Need Right Away
It’s not exciting but you may have to just take a step back and sell some of your investments (outside of anything in a retirement account which you want to avoid if at all possible).
If you know you’re going to need a certain amount for your house, your car, child care or health care, you probably don’t want that money rattling around in anything that is even remotely risky.
You have no idea if the market is going higher or lower. Sell your positions and move them to the savings account.
Live to fight another day.