If anyone can feel a recession coming, please let me know, that way I can preemptively move my investments to cash -- oh and don’t be wrong. Seems easy enough, right? Let’s talk about what a recession is and how it can impact your day to day before we jump into the investment portion. I think a lot of people worry that they will “lose” money, I say that in quotations for a purpose, but I will get to that shortly.
So what is a recession, really? Google’s dictionary defines it as “a period of temporary economic decline during which trade and industrial activity are reduced, generally identified by a fall in GDP in two successive quarters.”Cliché to use the definition, but also, this really helps us get a grasp on when and if a recession can occur. Let’s take the current climate. There’s no doubt that we obviously are set to have a negative quarter. As quickly as things can be negative, they can also be positive, but it is easy to say we are “heading for a recession” because we have one of the first criteria… a negative quarter. Now the only thing that needs to happen is a fall in GDP for an additional 3 months. It’s absolutely possible, but so is avoiding a recession.No one can predict the future, however, everyone should be preparing as if a recession could happen; that’s what we do as advisors/planners here at InvestEd.
If this is finally your wake up call to get your finances under control, let’s identify a couple of areas to focus on for now:
- Your Emergency fund - This is typically an area we focus on for immediate goals anyway. It is often the #1 priority for people, and a looming recession would not change this either!Make sure your emergency fund is bolstered as much as possible.
- Your debts - Make sure your debts are in control and reasonable to your budget. You should make sure you have enough in your emergency fund to cover 3-6 months of these payments as well.If you are worried about a recession, selling investments (taxable) are an option here to help you get ahead of debt payments.
If you’ve adequately managed the first two areas, my recommendation for your investments is to stick to your strategy and keep things simple. You can increase contributions to your retirement plan through work (if you aren’t maxing yet), your IRA, or taxable investments, etc.Our recommendation has been the same for our clients here. I would say you are good to go for investing more in this down market. The thing you have to keep in mind, however, is not to get greedy! Things are down, you’re buying things on sale and historically things have recovered, so stick to your strategy. In terms of the actual investments, I wouldn’t get too carried away with trying to predict the next area of the market to boom. People keep telling me that the cruise line stocks and airlines are the way to go!In reality, that’s not how things work. These are the same people that say to buy clothing companies when it’s holiday season. If you know us, you know stock picking is not investing. Stick with your balance portfolio and collaborate with a fiduciary advisor to check that your strategy is geared towards your goals.
If you would like to review your personal situation, schedule a time to meet!We are still available via Skype or phone! Talk with us anytime.
Lead Advisor, InvestEd.