There has been a lot of dire talk lately about a recession. Negative economic growth this year seems to confirm the most pessimistic predictions.
Definitions vary, but most economists agree that a recession is simply a prolonged and significant downturn in economic activity.
Philip Chao, founder and CIO of Experiential Wealth in Cabin John, Md., said it’s important to remember that there have been 14 recessions in the U.S. since the Great Depression of the 1930s, and each one lasted an average of 11 months. “Recession is a natural part of an economic cycle,” he said.
Many people have the idea that all recessions mean years of high unemployment, shortages of goods, inflation, terrible market returns, and families running out of money. However, recessions are not always extreme; they can be shallow and short-lived. What’s more, markets don’t necessarily lose value for the entire recession. They usually recover before a recession is technically over.
Even if the next quarter continues to show negative growth, it’s important to remember that the stock market has had three straight years of solid, double-digit growth. Downturns are a normal part of the macroeconomic cycle.
Approaching a recession proactively can put an investor in an even stronger economic position than before. It’s during times like these that investors need calm and informed guidance. A regular review can help you maintain a long-term strategy for pursuing your goals - one that aligns with your risk tolerance, liquidity needs and time horizons, and that includes diversification so that your losses in a downturn might be minimized. It can also ensure that we make adjustments as needed and not based on emotion.
It is important at this time to focus on the factors that you can control, such as discretionary expenses. You should make sure that you have adequate cash to weather this downturn; you do not want to be in a position where you’re forced to liquidate growth assets during a downturn.
Also, cash reserves allow an investor to purchase quality holdings at a good price. We will not attempt to ‘time’ the market but we can use dips to rebalance your portfolios, increase diversification and enhance growth opportunity over the long run.
A Registered Investment Advisor can help you weather market fluctuations, minimize losses and capitalize on available ‘bargains’. Call today to set to a portfolio review.
While we cannot predict the next recession or when the market will turn again, we can plan for it.
Sources: Financial Advisor, US News and World Report