Economists are expressing concerns over indicators such as escalating prices, tariffs, and a slowing job market that hint towards a potential recession projecting a 93% chance of this happening by year's end, as per UBS, an investment bank. Recessions are notorious for diminishing corporate profits, triggering job loss, and causing issues concerning borrowing money while disrupting the stock market. These conditions often lead to panic selling, termination of retirement contributions, and complete exhaustion of emergency funds.
To navigate a recession and maintain your wealth, experts advise preparing your finances, staying composed, adhering to your original financial plan, and heeding the following advice.
In times of economic prosperity, it's often tempting to invest heavily in areas promising high capital growth. However, this strategy can frequently expose its flaws when a recession sets in. During such times, advice promoting risk diversification across assets becomes invaluable.
Resist the urge to halt contributions if it's avoidable. Investment rule numero uno is to buy at a low price and sell at a high, an opportunity that arises more during trying times when everyone else is selling.
Nicole Simpson, founder and president of Harvest Wealth Financial, supports this notion. She says, “Ensuring a diversified investment portfolio that you add to systematically is a brilliant strategy to safeguard wealth during recessions. Identify your optimal target portfolio based on your investment tolerance to protect what you've amassed while leveraging any market turbulence that may adversely affect various sectors”.
This is also the time to reevaluate your debt obligations, as income loss is a common occurrence during recessions, and the need to minimize expenses becomes crucial. Transferring any credit or debt obligations to a zero percent interest vehicle or paying off the debt in total is a strategy to mitigate costs and manage the debt over an extended timeframe.
Ryan Greiser, financial advisor and co-founder of Opulus, suggests people use a recession as an opportunity to find alternative streams of income to reduce sole dependency on one job. Creating additional streams of income that don't rely on your employer or the economy can act as a safety net.
Implementing effective wealth protection methods prior to a recession puts you at an advantage. This applies to diversifying your investment portfolios, exploring new income streams, avoiding excessive debts, and constituting an emergency fund.
The key is to ensure financial resilience even during challenging times. Spreading risk, ignoring the noise, and bolstering your finances during favorable times will help mitigate the impact of sudden income disruptions, and might even present opportunities during the economic turmoil.