In the midst of an economic downturn when gas prices are high, retirement account balances are low, and interest rates seem to only keep rising, investors and families alike may find themselves wondering how to prepare for a recession — including the one we’re currently facing.
Right now many are wondering, “what happens in a recession?” In the most basic terms, an economy in recession is experiencing steady decline over an extended period of time. As a result, we often see that the region’s gross domestic product (GDP), or the monetary value of goods and services, will drop, unemployment rates go up, and spending as a whole decreases.
So, how do you financially survive a recession? Buckle down for a period of less spending on big-ticket items and more savings, and prepare yourself to ride out a bear market. Here’s a more in-depth look at what you can be doing to prepare to financially thrive during a recession.
What to do to prepare for a recession
1. Reassess your financial goals and stick to your budget
Recessions are filled with unknowns. Your financial goals and month-to-month budget should not be one of them. Take some time to understand your spending as well as assess where you can cut back for the time being and then be strict about sticking to that budget.
Being proactive about your spending before and during an economic downturn is one of the best ways to prepare yourself and your family.
2. Diversify your investments
If you’re looking for the most secure investments for retirement and your portfolio, your best bet is to invest in different types of vehicles, across multiple types of industries. This could look like investing in the real estate market, stock market, mutual funds, or even alternative assets.
You may have to switch your strategy a bit to encompass a more long-term vision or accommodate investments in markets such as healthcare and consumer products that tend to remain steady even during turbulent times. Most importantly, you should also consider partnering with a financial advisor who can manage your accounts for you. This way you can feel confident that your portfolio is well-balanced and ready to take advantage of the recovery that comes after a recession.
Continue reading: Are managed investment accounts worth it?
3. Pay off any debt
Whether it’s consumer debt, student loans, or a car payment, paying off any debt you owe, starting with those that have the highest interest rates, should be at the top of your priority list. Doing so will not only save money in interest payments, but free up extra funds that can be allocated to other areas of your financial plan such as building out your investment portfolio while the markets are low.
4. Establish emergency funds and stockpile savings
No matter how much you’re worth, an emergency fund and cash savings are a vital part of being financially responsible. Emergencies are inherently unpredictable and in a time when your investments may be worth less, the last thing you want is to be put into a situation where you need to sell your stocks, bonds, mutual funds, or whatever vehicle your money is held up in, for less than you initially invested.
Emergency funds should have at least three to six months of expenses in them, if not more.
5. Partner with a fiduciary wealth manager
Understanding the highs and lows of the market, predicting future changes, and knowing where to invest your hard-earned retirement fund… financial decisions can be challenging to make on your own, especially during a time of economic uncertainty.
Instead, save yourself the time and headaches and partner with a fiduciary wealth manager who can help you incorporate a risk management plan into your high-net-worth investment management strategy.
What should you avoid doing in a recession?
There is little predictability during a recession, and until there are signs that the economy is recovering, it’s smart to avoid making any rash decisions. This can come in the form of selling stocks at the first sign of a dip, starting investment projects that cause you to take on new debt, or even making large, unnecessary purchases.
During a recession, you’ll also want to avoid cashing out your 401(k), even if it has dipped. That said, if you are nearing retirement and will need to soon be using those funds, you may want to consult with a wealth manager who has experience with retirement planning in Houston.
Is your financial plan prepared to survive a recession?
You can’t control when a recession is going to happen, but you can be ready when it does hit. If you’re wondering how to prepare for a recession, you should start by assessing your financial goals and creating a strict budget. From there, you’ll want to pay off any debts you owe, put more than you think you’ll need into an emergency fund, diversify your portfolio, and partner with a wealth manager who can help you make decisions that align with your vision for your financial future.
Whether you have an existing financial plan that isn’t faring well during this economic downturn, or you’re looking to create one that does, the multi-disciplinary team at Avidian Wealth Solutions is here for you. We help every client create a wealth management plan that accounts for turbulent times, including risk management for each aspect of your finances including retirement, investment management, and even tax planning in Houston.
To learn more about how we can help you with your financial plan, schedule a meeting with Avidian Wealth Solutions today.
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