Planning for Recession Without The Hype

Between the election frenzy, global pandemic and the fear of an upcoming recession, news headlines are being aimed like spears into everyone’s brain.

But instead of letting media stoke panic, let’s take a quick step backward and lay some hard facts out on the table. First, take a breath—or maybe six.

Since the last recession, our economy has had a pretty strong growth run.  Using the S&P 500 as a barometer, here are the numbers:

2009     + 23.45%

2010     + 12.78%

2011         0

2012     + 13.41%

2013     + 29.60%

2014     + 11.39%

2015     –      .79%

2016     +   9.54%

2017     + 19.42%

2018     –    6.24%

2019     + 28.88%

Two down years, two flat, two fair,  two good and two very good years (sorry, I used 11 years, but you get the picture) plus  a recession every fifteen to twenty years.  Pretty much in keeping with what history has shown in terms of averages.  So take a deep breath.

A  Recession, is  pretty much hardwired into the system. So stop stressing and start preparing for the eventuality. What can you do to get yourself ready for the next one?

Stop listening to the noise. The news media has a vested interest in keeping you glued to your seat. They need to stir you up to keep you viewing/reading. TURN IT OFF!

Get a handle on your finances. Know what your fixed costs are and decide if you need to make any structural changes to reduce cost. Along with that, if your finances are “fuzzy”, control your controllables (i.e. your discretionary spending).

Reduce or eliminate debt, especially credit card debt with anything more than zero or nominal interest rates. If you haven’t looked, check the rate on your mortgage and see if refinancing can put some dollars in your pocket.

Examine the threats to your money. If it’s your source of income, what can you do to make yourself more valuable, more marketable and more noticeable? Work with an executive coach to help you examine some of these factors.

Evaluate risk. There’s risk in everything. The question is, what are the big risks and how much does it cost to address the risk properly? And by risk, we’re talking your health, life, property, investment allocation, legal and tax, to name a few. Some risks can be off-loaded to an insurance company, others, not. Your willingness and ability to objectively evaluate the reality here is so important.

Stop trying to time the markets. If your allocation and diversification is aligned with your risk tolerance, then don’t start shifting things based on fear. Humans make the fundamental mistake of believing  they can outthink the stock market. Honestly, get over yourself. There’s a difference between dumb luck and being able to consistently move and shift assets to take advantage of market swings.

Get with a planner. Many people have insurance agents, stock brokers, etc. but not actual financial planners. Invest in working with an objective planner (who is not paid to invest your money or sell you products). Creating a plan that reviews and evaluates all the pieces of your financial life provides a road map that connects your money with your values. Do it.

Know what pushes your buttons and work to understand and control it. Our emotional state of mind can lead us to make bad decisions. I can’t tell you the number of times people have come to me to tell me what their “friends/relatives/co-workers” think and are doing in their financial lives and that they must know something that they don’t. Get a grip: they don’t. So if you’re feeling really stressed about things, please work with a therapist or counselor who can help you put things in perspective.

Control what you can control and do what you can do. More than that is impossible and not worthy of your time, energy, brain-power or health.

When the next Recession hits, your preparation (or lack thereof) will directly contribute to your overall success and well-being. What are you waiting for?

Related: Investing During Turbulent Times: A Cautionary Tale