It’s coming, can you feel it? The next recession is getting closer and closer, there’s no doubt. How do I know this? Simply put, recessions happen and we haven’t had one in quite some time, so it’s a safe prediction to make that the passing of each day moves us closer to the next. Are you ready?
Before we get ahead of ourselves, please understand that I have no clue when the stock market will decline again in a meaningful way. In fact, there’s data to suggest that we could see sunny days for some time yet. Whether the next recession reveals itself next week, next year, or a decade from now, the sunny days are when the wise begin preparations for the coming winter. You know this, but are you doing it?
I’ll offer you some thoughts that may aid you in preparing your psyche and your plan, but it’s important to recognize this fact: we are now in the midst of the third longest period of time between recessions in history. That may sound surprising, since 2008 seems like yesterday, but it’s true. The only other recession-free boom periods in our history that were longer than this were 1961-1969 and 1991-2001. Some simple math would suggest that winter may be here soon, if past is prologue.
Here are some actionable ways to prepare for the next recession:
Pay Off Consumer Debt – As investment account values and incomes have grown over the past number of years, so have consumer general debt levels. Using some of the prosperity experienced to extinguish expensive debt will be easier now than doing so with deflated dollars during a recession.
Mind Your Investment Risk Tolerance – When a recession hits and stock markets decline, don’t allow yourself and your portfolio to be surprised. Consider adjusting your holdings so that you own high quality, time-tested companies with strong financials, and a long history of paying dividends. When the tide goes out, owning companies that have over-leveraged themselves may reveal that they’ve been swimming naked. In this metaphor, swimming naked is not ideal.
If you’re still working, bolster your personal network – When times get tough, downsizing often occurs. Don’t allow yourself to be vulnerable and ill-prepared. Connect now with friends and former colleagues who work at other companies. That way, you’re just an email or a phone call away from a possible new employment opportunity without having to restart your network when you’re in crisis mode.
Take a closer look at your household spending – As I wrote about a few weeks ago, rehearsing austerity may prepare you for doing with less if the need arises. Check out that article by clicking here if you may have missed it.
Consider whether you’d sleep better at night by having a portion of your retirement income guaranteed. Just as homeowners insurance can be an invaluable lifeline during a fire, flood, or storm, so can retirement income insurance when tough times occur in the economy and markets. Additionally, if you have longevity in your family, you’d better prepare for a long retirement. If the markets decline and you’re retired a very long time, that’s a difficult combination for your nest egg to endure. In some cases, an insured retirement income can be an extremely valuable component of a robust retirement plan.
We certainly don’t know the date or severity of the next recession, but we know it’s coming. Just as winter follows fall and summer, recessions follow seasons of prosperity. I’m not advocating panic by any means, rather a closer look at those things we can do to prepare is simply prudent planning. Please let us know how we can help.
All the best,
Adam Cufr, RICP®