What to Do in a Recession: 5 Things

 

Your company will soon send you your most recent quarterly 401(k) statement, which will indicate the current value of your life savings. You may expect this statement, and you probably expect it to reflect a decrease in value for the stock and fund portion of your savings since your last statement. It is not unexpected that your investments are suffering given that inflation is significantly higher than average, interest rates are rising, and the economy might be entering a recession. But for the first time, corporations display predictions that depict what your lump sum savings would resemble as monthly income once you retire, in addition to your current 401(k) amount. These numbers might be less than you anticipated.

It can be challenging to locate a financial advisor you can rely on, who possesses the knowledge you require and is dedicated to serving your best interests. Consider using Wealthramp's free financial advisor matching tool in light of this. Each advisor in the Wealthramp network has undergone a thorough screening. Request a free appointment with any or all of your matched advisers after answering a few brief questions and reviewing your advisor matches. Your data will never be sold by Wealthramp. They won't make intrusive sales calls to you. Start now if you're prepared to see your ideal advisor matches.

So what comes next? There is a significant chance of recession as the Fed tightens its monetary policy against the backdrop of a slowing economy, and even a slight slowdown in growth might linger for months or years. Retail sales declines, manufacturing slowdowns, corporate recruiting freezes, and an increase in job losses or layoffs are among the recession's telltale indications. Recession is a regular part of the business cycle, however how worrying the news may seem at first. This is an excellent moment to review your financial strategy so that you may position yourself for success rather than just reacting.

Here are five crucial steps you should take right away to maintain your finances in fighting shape during challenging economic times, whether you're handling your money yourself or working with a dependable financial advisor to assist you manage a portion or the entirety of your portfolio.

1) Maintain a high credit score

Regardless of credit score, borrowing money is more expensive at a time of rising inflation. But those with poorer credit scores will be worse off. Borrowers who have demonstrated a commitment to timely repayment receive lower interest rates from lenders. Your credit score is a convenient tool that banks use to assess your borrowing capacity. Lenders will be hesitant to lend you money if you have a history of making late payments on your debts. Your credit score serves as a quick indicator of your borrowing habits; a low score indicates that lenders are concerned that you won't repay them. In order to cover such risk, lenders charge higher interest rates to lend to risky borrowers.

Now is not the time to let your credit score decline. If you do need to borrow money, you should do so at the lowest interest rate possible, which is only available to people with excellent credit ratings of at least 700. Have you looked at the interest rate you're paying on your credit card balances if you carry them from year to year? You often pay over 25% in annual interest on a credit card. Consider purchasing a set of summer patio furniture for $10,000 that was on sale. If you have a $10,000 credit card amount that is past due and you don't pay it off, that is equivalent to adding $2,500 to the cost of the table and chairs.

2) Keep Your Cash Reserves Full

It's crucial to reach the stage where you are certain that you have at least six to twelve months' worth of available funds in a readily accessible account for emergencies and unforeseen needs. In a downturn, having a reserve fund is even more crucial in case you lose your job or experience another significant unforeseen incident that affects you and your family. You'll sleep better if you have enough padding in your funds. The drawback is that banks don't offer much interest on savings or money market accounts, but the advantage is that you can get access to your money right away without having to risk selling losing equities to raise cash during a down market. Additionally, it gives you the assurance that you won't need to take out a loan as interest rates rise. Although it appears unfair that banks hike borrowing rates quickly while raising savings account rates far more slowly, the financial security provided by having liquid cash reserves makes it worthwhile. Making the decision to live within your means is the best approach to save more money.

3) Invest, But Don't Bet

Your savings and investment gains are eroded over time by inflation. When inflation is high—and it just reached 8.6 percent—you spend more but receive the same amount of goods and services. The average inflation rate is four times higher than one that is close to 9%. Inflation also damages over time, even at modest rates. Maintaining an investment in a wide portfolio of stocks is the greatest method to keep ahead of inflation since, over time, equities have a propensity to outperform inflation.

An established, independent financial advisor who has through a rigorous screening process can assist you if you're unsure how to create a diverse portfolio that is intended to safeguard and grow your money. It might be difficult to find a financial advisor you can rely on who has the knowledge to satisfy your financial needs and is dedicated to acting in your best interests. The free financial advisor matching tool offered by Wealthramp may be something you wish to take into account. Each advisor in the Wealthramp network has undergone a thorough screening. Request a free appointment with any or all of your matched advisers after answering a few brief questions and viewing your advisor matches. Your data will never be sold by Wealthramp. They won't make intrusive sales calls to you. Start now if you're prepared to see your ideal advisor matches.

Take it from the pros: investing is a slower process than trading. Ben Stein, an investment guru, questions what's wrong with average while Warren Buffett, a millionaire investor, claims gambling is dull and that investing should be boring too. John Bogle of the Vanguard Group disagrees. Buffett made his billions through methodical, dependable value investment. He wasted his finest opportunity to enter Apple (AAPL). He still has no Tesla investments as of yet (TSLA). He doesn't comprehend Bitcoin and has no interest in learning. He has rarely experienced a big win in his whole career as an investor. How then did he amass such wealth? He has lived a very long life, which is frequently forgotten in addition to his meticulous investing.

4. Look for Inflation Hedges

Selecting investments that serve as long-term hedges against inflation is another strategy to use during a recession. Because commodities like gold typically move in the opposite direction from stocks, they are the go-to short-term assets for shielding your portfolio from stock market shocks. Due to the fact that gold is a subpar long-term investment, many fiduciary financial planners advise only hedging 5% to 10% of your portfolio. One of your best strategies for combating inflation is to fully diversify your holdings. That doesn't include picking random exchange-traded funds from various industries. In order to diversify, you must develop a plan that you adhere to and update as needed based on market data. The best course of action is to get in touch with a financial advisor who can assess your portfolio and assist you in ensuring that it is diversified.

5) Improve Your Skills and Your Resume

In the United States, unemployment is currently at a record low. Employer layoffs are a common result of recessions, whether they are shallow or deep. Making yourself as valuable an employee as you can is the best strategy to guard against losing your job and ensuring that, if necessary, you are successful in obtaining a new one. Take advantage of the perk if your employer now pays for your education and pursue a degree or certification that will boost your future earning potential. You can also take advantage of low-cost or free training opportunities to strengthen your resume. Keep track of your professional successes to make your CV and cover letter stand out and draw the correct kind of attention. Likewise, maintain close contact with both your personal and business networks.

Choose whether to use digital tools to do it yourself or work with a well vetted, fee-only fiduciary financial advisor who serves as your sole client and is not an agent for a brokerage house or insurance company while you take defensive action to protect yourself and your family from recession. Choose a fiduciary with experience and competence in retirement income planning if you are approaching retirement. They can assist you by:

• Plan your taxes either on your own or with their guidance.
• Create a long-term investing plan that you can stick to.
• Create strategies for paying off high-interest debt.
• consolidate cash accounts

It might be hard to find the correct financial counselor. Allow Wealthramp to assist you in locating the ideal financial advisor that can assist you with your unique goals and circumstances.

Pam Krueger is a recognized investor advocate, award-winning personal finance journalist, and founder and CEO of Wealthramp, a free advisor matching platform that connects people with rigorously vetted fee-only financial advisors. She is also the creator and co-host of MoneyTrack, which aired on PBS from 2005-2019, and Friends Talk Money podcast for PBS Next Avenue currently in its 7th season.