And now you’re hearing that we may be in a recession, or that one is inevitable.
You remember the Great Recession and how hard it was for so many. So when you say you should “calm down” or “this too will pass,” it doesn’t address the anxiety you feel about your financial well-being.
It’s okay if you feel like things aren’t right.
What you shouldn’t do, however, is take steps based on recession fears that can put you in a worse position financially.
Recessions don’t last forever.
According to Lindsey Bell, chief markets and money strategist at Ally, recessions last an average of 11 months. The shortest recession on record is the 2020 pandemic-induced recession, which lasted just three months.
Here are seven tips on how to protect yourself whether or not a recession is coming.
1. Don’t be afraid of a bear market. You may not even know what a bear market is, but be prepared to be petrified in front of one.
This week, the S&P 500 index slipped into a bear market, defined as a 20 percent decline from a recent high.
According to Anthony Saglimbene, global markets strategist at Ameriprise Financial, the average duration of a bear market since 1950 has been around 418 days.
“Just change your perspective a bit and see this as an opportunity if you’re a longer-term investor,” Saglimbene said.
Focus on companies with strong balance sheets, strong cash flow, and products that consumers use and need, he suggested.
The stock market is in bear territory. What does that mean?
“Healthcare and staple food companies have often done well in recessionary environments because people need their products regardless of the economic environment,” said Christine Benz, Morningstar’s director of personal finance.
It’s a good time to take advantage of “dollar cost averaging,” which means that you invest the same amount of money consistently regardless of the ups and downs in the market.
Although stocks are currently taking a hit, they have historically recovered well after a recession. If you don’t have exposure to stocks, you’re missing out on the eventual recovery.
“If you have the money to work today, this is a good time to talk to an advisor and figure out what a good dollar cost-average strategy over time might be,” Saglimbene said.
Over the long term, buying stocks slowly and steadily beats trying to spot market downturns ahead of time, experts say
2. Don’t try to time the market. Many people may want to get out of the stock market or scale back their investments until things get better. That is the definition of trying to time the market. It’s impossible to know when to get off and when to get back on.
“Most people, most mere mortals, don’t have the ability to time the market,” said Mark Hamrick, senior economic analyst at Bankrate.com. “Even Warren Buffett would admit that.”
Once we bottom the bear market, stock returns tend to outperform for the S&P 500, Saglimbene said.
“One of the things we always teach investors and advisors is that when you’re in a recession or a bear market, you don’t want to make any outsized allocation adjustments until the dust settles,” Saglimbene said. “If you are properly diversified, you will weather the storm. The worst thing an investor could do right now is try to time the market bottom.”
Despite the stock market slump, we are not yet in a recession
3. Get rid of your credit card debt. Now. “The number one task for anyone with a credit card is to cash out their balance as quickly as possible,” said Matt Schulz, chief credit analyst at LendingTree. “When a recession is looming and interest rates are rising quickly, that’s even more important.”
One way to get your debts under control is to take out a low-interest personal loan or sign up for a balance transfer credit card. You can get out of the debt trap much faster if you transfer high-interest debt to a credit card with 0 percent interest.
If you can’t qualify for a 0 percent credit card, call your current loan issuer and ask for a rate cut, Schulz suggested. “About 70 percent of people who asked for one in the last year got one,” Schulz said. “But far too few people ask.”
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4. Accumulate savings. Save while you have the extra money because a recession can change your circumstances quickly.
If you don’t have good emergency fund, consider canceling a vacation or putting off an expensive renovation project that isn’t necessary.
“For a lot of people this inflation problem is tantamount to an emergency right now,” Hamrick said.
You don’t want to have to resort to debt if you lose your job or because your wages don’t keep up with historically high inflation, he said.
Also, keep in mind that the standard advice of having three to six months of living expenses may not be enough.
“It makes sense for workers to properly size their contingency reserves based on their own situation,” Benz said.
Younger workers may have more lifestyle flexibility to find a roommate or two or change career paths to take advantage of new job opportunities. So her emergency reserves could be closer to the three- to six-month cost-of-living recommendation, she said.
But if you’re an older worker and can’t change your housing situation and/or you’re in a high-paying, specialized position and it could take longer to regain your income if you lose your job, step aside for a year’s worth have savings or assets that you can easily liquidate.
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5. Set up a backup for your emergency fund. In addition to having a recession-rainy day fund, Benz recommends finding out where you might find additional funds if you need them in an emergency.
“A home equity loan can make sense in this context, and it’s best to get it if you’re employed and most likely qualify,” she said.
6. Don’t underestimate the power of bonds in your retirement portfolio. Typically, when stocks fall, bonds Balancing your stock holdings. But bond prices were also hit.
Still, bonds have held up better than almost any other segment of the market in previous recessions, Benz pointed out.
“In other words, don’t throw them overboard because they’re not doing well right now,” she said. “They’re an essential part of the portfolio, especially for people who are or are about to retire.”
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7. Get a side gig. Many employers beg for workers.
There is a record number of job vacancies with an unemployment rate of 3.6 percent. The economy saw job gains in transportation, warehousing, leisure and hospitality, education, health services and government, according to the Labor Department.
“But there’s an obvious risk that unemployment could rise,” Hamrick said.
Even if you don’t need the money right now, it might be a good time to take a second job or find work in the gig economy to increase your income and savings. Now is the time to prepare for the worst and hope for the best.