It seems the media is hell bent on talking us into a recession. Every day there’s more and more coverage about a pending recession. But where is this talk coming from? Job growth has slowed, but is still steady with over 300,000 new jobs per month being created. Gas prices have dropped at the pumps for over 20-plus days depending on which source you cite. Mortgage interest rates have declined nearly 1% since last month, but granted, are still higher than in recent years. Inflation, seems to be slowing and not accelerating as quickly as it did the end of 2021, beginning of 2022. And, consumers still seem to have pent up demand and are spending on travel, restaurants, and services. All that said, a recession could be in the cards. We don’t know when or if it could officially start. Nor do we know if it will be mild, or severe. Either way, there are things you can do to prepare for a recession.
The main thing to know, is that you can’t stop or prevent a recession if it is in the making. You do have choices to make as to how well you survive a recession. Yep, even in a recession there are opportunities. Here are a few tips on surviving a recession like a pro!
Tackle debt now! If you have any rate sensitive debt, like credit cards or consumer loans, get those paid off now. Interest rates on credit cards and consumer loans are sensitive to increases in the federal funds rate. That is, the card companies end up raising the interest rate you pay on your card. This takes a bigger bite out of your wealth if you have a balance.
Stash cash. Make sure you have a solid 6-to-9 month emergency fund. Even if you have an emergency fund, line up more cash now. If you are employed, have a healthy emergency fund, a strong income, and low debt, you still may need cash. Consider parking your overage in high-yield savings, or possibly buying an I bond. Note that with I bonds, there are more considerations. You can read up on those at Should I Buy an I Bond? A backup access to cash is also a good idea. For some, a personal line of credit or HELOC might be a good choice. Being approved ahead of a recession while you still have a job is easier than in the midst of a recession or worse, if you should happen to lose your income.
Be one with the bear. Bear markets are terrible. There’s no denying that. However, you can be one with the bear. As investors, we’ve been primed to hate bear markets and to fear them. If you are still employed and earning income, bear markets are buying opportunities. Up your retirement plan contributions if you are not maxing out your annual contribution. Contribute monthly to your taxable investment account. This regular contribution, every two weeks via payroll, or monthly on your own to your investment account, is dollar-cost averaging and a great opportunity to add to your investments while share prices are depressed.
Retired in a recession? This is scary for retirees, but it doesn’t have to be. Think about this, you’ve already (or should have) planned for recessions. Think back to working with your financial planner. This was the reason for Monte Carlo simulations. You may want to do the same as above with regard to cash and credit debt. However, for retirees, you don’t need to fear a job loss. This could also be an opportunity for you to take advantage of services and offers from recession sensitive industries like travel. If you are not taking Social Security and you are at Full Retirement Age or older, talk to your planner about tapping Social Security to relieve pressure on your portfolio.
These are the basics to position you to survive a recession. Keep in mind: you shouldn’t try timing the market, don’t abandon your financial plan, consider a little belt tightening, and know that you will survive and get through a potential recession. If you don’t have a financial plan or are not working with a financial planner, reach out to me. I would be happy to work with you.
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