How to Prepare for a Recession
The dreaded R word is being talked about yet again and while we are tired of predicting whether or not we might see a recession in our future, the reality is that economic downturns are a natural part of the economic cycle and can happen at any time. So, here are a few things to consider that can help you stay ahead of the curve and be ready.
Build Up Your Emergency Fund
One of the most important steps you can take to financially prepare for a recession is to build up an emergency fund. This fund should cover at least six months of living expenses, including rent/mortgage, utilities, groceries, and other essential costs. Having this fund in place will provide a safety net in case of unexpected job loss or reduction in income.
Diversify Your Portfolio
Diversifying your investments can help mitigate risk during a recession. This means investing in different asset classes such as stocks, bonds, real estate, and commodities. By spreading your money across different types of investments, you can reduce the impact of market volatility on your overall portfolio.
Manage Debt
Another important step to take is to pay down high-interest debt such as credit card balances and loans. By reducing your debt burden, you can free up cash flow in case of a job loss or reduction in income.
Keep Investing
It may be tempting to pull out of the stock market during a recession, but history has shown that staying invested is often the best strategy for long-term growth. By sticking to your investment plan and continuing to make regular contributions, you can take advantage of buying opportunities that arise during a recession. Keep in mind, the market is a leading indicator meaning it is typically down, leading us into a recession and starts to recover, leading us out of a recession. In fact, since 1929, the stock market has earned 24.5% on average the year following a recession.
Revisit Your Financial Plan
Finally, it's important to review your financial plan with your wealth management advisor. We can help ensure that you are on track to meet your long-term goals, even in the midst of a recession. By making any necessary adjustments to your investment strategy, you can stay on course and weather any potential economic storms.
While it's impossible to predict the future, having a solid financial foundation can provide peace of mind and help you achieve your long-term goals.
If you would like to learn more about how we can help you prepare for a recession, please don't hesitate to contact us. We would be happy to discuss your specific financial situation and develop a customized plan that meets your needs.
*The opinions voiced are for general information only and are not intended to provide specific advice or recommendations for any individual.