We?re not calling for a 100% chance of recession in our financial forecast. Because no one knows exactly what the future holds. But that hasn?t stopped a media storm from a brewin?.
You?ve likely heard fears of recession a lot recently. Coverage of the war, down market, poor bond performance, and interest rate hikes has been riddled with them. But it?s critical you keep your head and act proactively in the face of fear.
Below you?ll see the strategies we use to help clients prepare for the worst. Use them to build yourself a financial bunker of sorts. That way, if the storm hits, you?re the one who?s ready to wait it out. Let?s get started.
1. Solidify Your Emergency Reserve
How?s your rainy day fund? Is it equipped for the market downpour? Because you?ll want a minimum of 3 months of living expenses on hand.
Now wait a second. What exactly are your ?living expenses?? Because you might feel like you?re dying without an HBO subscription, but you?re not. What you need covered are things like your mortgage (or rent), utilities, health insurance, car, and groceries.
Now those are living expenses!
Also, 3 months is the minimum. You may want to beef it up to 6 months. Especially when you consider that the average bear market runs 388.8 days.1 Together we?ll help find the right timeframe for you that keeps you protected, but still tracking for retirement.
2. Find Ways To Save NOT Spend
Do you really need to go out to eat again? Is now the best time to get the basement remodeled? Are you getting enough value out of that TV and movie subscription?
Geez, you guys really hate HBO!
We don?t. We love watching you own the things you want. What we hate is watching those things own you. And sometimes you need to be shown some tough financial love.
It?s hard changing your financial habits. But when you take inventory of what things are truly costing you, it can be a much-needed wake up call. Together we?ll help you analyze your expenses, and identify areas where cutting back brings back confidence.
Big Ticket Items
These deserve special attention. Especially during the holidays. That?s because it?s easy to use them to justify overconsumption, overpriced gifts, and out-of-budget trips.
We?ll help you create experiences you?ll actually want to remember. That jewelry, car, or getaway might look good now. But if you can?t afford to ball out, a recession will have you bawling your eyes out.
Let?s plan ahead instead!
3. Be Honest About Your Job Security
How are things at your job? You may be in search of a new one, or feeling unsure about the security of your current one. Either way, this is a key consideration in a time like this.
While there may be no such thing as true ?job security,? there are positions that seem particularly vulnerable to recession. CNBC recently asked economists to weigh-in on the industries with most vulnerability pending a possible recession.2 They included:
- Real Estate
Your income may be the main thing keeping you (and your family) afloat. And while it?s unpleasant to think about, preparing for possible job loss is vital. Now?s a good time to get your CV in order, look at your savings, and develop a long-term plan with our team.
4. Know Your Fears Ahead Of Time
Times of financial security leave you prone to major financial mistakes. And some of the biggest revolve around your investments. So make sure you?re aware of the bad ideas ahead of time.
What our experience with clients has repeatedly shown us:
- You will be tempted to panic sell
- You will be tempted to chase market trends
- You will be tempted to overcorrect into ?safer? investments (e.g. bonds, CDs)
Panic selling realizes losses, and leaves you with less capital to reinvest. Chasing market trends (typically) leads to rapid losses in value. And overcorrecting into ?safer? investments can leave you failing to keep up with inflation, and taking advantage of long-term opportunities (the biggest mistake, actually).
5. See The Long-Term Opportunities
Not everything?s about being on the defensive. When staring down the barrel of a recession, it can make sense to fire back. A key investor mindset is being able to see opportunity where others see fear.
During a recession the entire market takes a hit. But that doesn?t mean the market as a whole is a bad long-term bet. It?s the opposite actually. The S&P 500 has bounced back rapidly from past economic bottoms. Check out the following rebounds that happened in less than year:3
- 19%+ following the low of the Dot-Com Bubble burst
- 35%+ following the low of the Great Recession
- 36%+ following the low of the COVID-19 crash
Together we?ll help you take advantage of a time when investments are on sale. We?ll help keep your thinking dialed in on the long-term. And we?ll be at your side as you resist the temptations of the short-term.
Crafted Finance Helps Every Step
At Crafted Finance, we don’t want you to panic. But we want you to be proactive. And with talks of a potential recession looming in the future, now?s the time to take action.
As a team, we work with our clients to regularly take inventory of both their assets and their spending habits. This identifies critical areas to build up (ex: emergency funds), and areas to cut back (ex: big ticket items).
We also work closely with clients to make sure of their thinking in the long-term. And we?re able to put a plan in place that handles the potential job losses, scarcity-driven mentalities, and opportunistic investments a recession can produce.
We?re ready to help you take back your confidence, and prepare for a potential recession. So feel schedule a complimentary consultation call, or call us directly at (650) 336-0598. We?ll help devise a plan that works for you. And we?ll work to keep your retirement on track in the face of recession.