I invest in my 401(k) every month without fail — but I'm starting to get really worried about a recession. Would it be a mistake to start hoarding cash instead?

Emergency savings and 401(k)

Both an emergency fund and a 401(k) are essential parts of a strong financial plan. One secures your future, the other protects your present.

Your first priority should be building a big enough emergency fund. It’s your financial parachute when life throws you a curveball: a job loss, a medical bill or a major home repair. Without it, you might be forced to lean on credit cards or payday loans to stay afloat.

Most experts recommend saving at least 3-6 months’ worth of essential expenses in a liquid, high-yield savings account. That way, the money’s there when you need it, without penalties or delays.

Once you have this cushion and you've paid off any expensive debt, you can turn your focus to investing. Your 401(k) is a powerful tool for long-term wealth, especially when you factor in tax advantages and employer matching. Experts recommend putting at least 15% of your pretax income, including employer contributions, toward retirement every year.

Stopping contributions at any age can be costly but especially if you have a long investment horizon. Say you start contributing $6,000 a year at age 30 and retire at 67. With a 7% annual return, you’re looking at nearly $1.1 million before any employer contributions. Add those in, and you would be looking at a very healthy retirement nest egg.

Contributing during downturns as well lets you buy low and potentially reap bigger rewards when the market rebounds. And if you stop entirely, you also lose out on any employer match — which is essentially free money left on the table.

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How to find a balance and supersize your emergency fund

You may decide that your income during a recession will be irregular, and a 3-6 months emergency fund won't cut it. Maybe you’re in a stable industry like health care, but your spouse works in real estate — a sector that can wobble when the economy dips.

Personal finance guru Ramit Sethi recently recommended people build a 12-month emergency fund he calls a “war chest.” But he didn’t say you should stop investing to do it.

“That means cutting discretionary spending now, before the world forces you to,” he said in an Instagram video. Before you cut into retirement contributions, look for easier budget wins: Cancel unused streaming services, rein in food delivery, or hit pause on nonessential subscriptions.

Speak to a financial advisor about the best approach for you, but here’s a simple strategy you can consider adopting: Once you build a 3-6 months emergency fund, keep contributing enough to your 401(k) to capture your employer’s full match. That’s your bare minimum. Anything beyond that? Consider redirecting it toward emergency savings, at least until you hit your goal.

Once your emergency fund is big enough to help you sleep better at night, ramp those 401(k) contributions back up. Because the best financial plans don’t sacrifice long-term security for short-term panic — they find a way to support both.