Is it smart to buy stocks during a recession? Absolutely, says Morningstar analyst Bill Bergman. He crunched some historical data from the nine recessions we've had since 1950 (each of which was deemed so by the National Bureau of Economic Research's Business Cycle Dating Committee). Interestingly, Bergman's examples show that recession investing beats continuous investing, in either nominal or real terms, he says. Consider the following illustrations:
1. Let's say you had put $1 into the S&P 500 stock index every month since 1950, Bergman says. That $703 would be worth about $9,300 today. But had you been "lucky, smart, and disciplined enough," he says, to invest only in the nine months that the NBER deemed the onset of each of the nine recessions—in other words, investing equal chunks of the $703 ($78.11) in each of those nine months—you'd have $11,600 today. That's 24 percent more than if you had just bought into the S&P 500 every month.
2. Had you broken the $703 into 93 equal amounts—for each of the 93 months that NBER deemed to be in recession—you'd have ended up with a higher return than if you had invested only at the onset of recessions, Bergman says.
3. If you had bought into the S&P 500 only in the nine months in which the nine recessions ended, you'd have less money today than if you had bought at the onsets or in the midst of those recessions, Bergman says.
OK, so it would require superhuman foresight to accurately predict recessions and recession onsets down to the month. But Bergman's data are encouraging for anyone who's contemplating putting money into the market right now.
Here's another great takeaway from Bergman's story: The S&P 500 is included in the index of leading economic indicators because it tends to go down before recessions start and rise before recessions are over.