The U.S.’s longest economic expansion came to a halt in the first quarter of 2020 with the COVID-19 pandemic. Despite the uncertainty surrounding the longer-term financial impacts of the health crisis, we could look to prior economic downturns to prepare ourselves to weather an extended storm. After all, those who do not learn from history are doomed to repeat it.
Looking back over the past two decades to the aftermath of the dot-com bubble and the subprime mortgage crisis, we are reminded that good times do not last forever. However, what we did learn from these events is that the best way to protect yourself during a recession is to plan and prepare for a potential downturn while the economy is still booming. Following are four critical strategies you should consider now, if you haven’t already, to help you protect your personal finances during a recession.
One of the best ways to prepare for an economic downturn is to have an emergency fund saved up to cover at least six months of your living expenses, including, but not limited to, mortgage or rent payments, utilities, health and property insurance, required loan payments, and costs for groceries, gas, child care and medical care. Even if you are lucky enough to stay employed and keep your business running through the current crisis period, an emergency fund can go a long way to cover all of life’s unpredictable expenses, including costly home repairs, appliance replacements and bills for medical care. You can set a goal by working backwards, taking into account all of your required monthly expenses. Keep these assets liquid and separate from your other savings accounts so you can access them quickly and without fear of incurring any tax liabilities. As part of your plan, consider how you will replenish your savings to protect you and your finances from the next unexpected emergency.
As times change, so too do your needs and goals. No matter your age or where you are in life, it is important that you regularly review your investment portfolio against your long-term goals and your current risk tolerance and time horizon. It may make sense for you to adjust your asset allocations to better manage your exposure to ongoing market fluctuations rather than being forced to sell equities at depressed values during an extended bull market. Moreover, you should consider this time of falling stock prices as a buying opportunity with the potential for significant upside.
Having outstanding debt through a financial crisis can be crippling, even as interest rates remain low. Try to pay off or pay down any balances you have on credit cards or other accounts to reduce your bills and minimize your payment obligations through a recession. During this time, lenders generally are willing to work with borrowers to establish more accommodative repayment terms. However, the only way to receive this relief is to reach out and ask for it.
Due to the unprecedented nature of the COVID-19 pandemic, it is difficult to accurately project the impact it may have on your long-term financial picture. With this heightened level of uncertainty, it makes sense to review your current sources of income and compare them to your monthly bills and spending costs to determine if there are there are opportunities to cut back on unnecessary expenses. Similarly, now is a good time to review your estate plan, especially if you are nearing retirement age and expect to rely on your retirement savings to fund your golden years. Several estate-planning tactics that take advantage of today’s depressed asset values and historically low interest rates can help you survive and possibly thrive through an economic slowdown or extended recessionary period. The secret is to work with experienced financial advisors who understand your unique needs and can customize a strategy to help you achieve those goals.
About the Author: Jamel Gordon, CFP®, is a financial planner with Provenance Wealth Advisors, an Independent Registered Investment advisor affiliated with Berkowitz Pollack Brant Advisors + CPAs and a registered representative with Raymond James Financial Services. He can be reached at (954) 712-8888 or via email at firstname.lastname@example.org.
Provenance Wealth Advisors (PWA), 515 E. Las Olas Blvd., Ft. Lauderdale, FL 33301 (954) 712-8888.
Jamel Gordon, CFP® is a registered representative of and offers securities through Raymond James Financial Services, Inc., Member FINRA/SIPC.
Raymond James is not affiliated with and does not endorse the opinions or services of Berkowitz Pollack Brant Advisors + CPAs. PWA is not a registered broker/deal and is independent of Raymond James Financial Services. Investment Advisory Services offered through Raymond James Financial Services Advisors, Inc., and Provenance Wealth Advisors.
The information contained in this report does not claim to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Investments mentioned may not be suitable for all investors.
PWA is not a registered broker/dealer and is independent of Raymond James Financial Services. Investment Advisory Services offered through Raymond James Financial Services Advisors, Inc., and Provenance Wealth Advisors.
This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Any opinions are those of the advisors of PWA and not necessarily those of Raymond James. The information contained in this report does not purport to be a complete description of the developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Investments mentioned may not be suitable for all investors. You should discuss any tax or legal matters with the appropriate professional. Prior to making an investment decision, please consult with your financial advisor about your individual situation.
Posted on September 1, 2021