Ongoing supply chain challenges, prolonged inflation and geopolitical turmoil in Ukraine are stoking fears of a recession. Whether the Fed’s interest rate hikes can help to quell the threat of an extended recession depends on several factors, including a look at prior economic downturns. 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. In each of these circumstances, we learned 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 yourself and your finances from an 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 bear 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.
During times of uncertainty, it is especially difficult to accurately project the impact on your long-term financial picture. In the current environment, 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: Kathleen Marteney, CRPC, 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. She can be reached at (800) 737-8804 or via email at email@example.com.
Provenance Wealth Advisors, 515 E. Las Olas Blvd., Ft. Lauderdale, FL 33301 (954) 712-8888.
Kathleen Marteney 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.
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Posted on June 16, 2022