We can’t avoid the headlines and news cycles that a recession may be in our near future. It’s true, the risk of a recession is higher today than it was six months ago. There will be a recession at some point, however with somewhat strong corporate balance sheets, and a low unemployment rate, there are reasons to think that a recession may not be imminent.

Recessions on average happen every 10 years, and often follow times of strong economic growth. There is a natural end to a business cycle. In plain terms, a recession means that the economy has contracted two quarters in a row. Regarding recessions, it’s always a matter of when, not if. The Great Recession of 2007-2009 lasted nineteen months, while the recession of 2020 lasted two months.

So, if a recession is a normal, natural part of the economic cycle, how can we prepare, so it’s less stressful, and puts you in the best possible position. Here are some tips:

1. Let's have a conversation about your individualized planning.

Everyone has their own goals and timing. A discussion is encouraged to talk through your particular situation and concerns.

2. Add to your emergency fund account.

With inflation being higher, items cost more. Make sure that you have a buffer. A guideline for you may be to have six months or more of savings on hand.

3. Pay off debt.

If you have credit card debt, even if a low balance, pay it off. Those interest charges are counter to the principle of compound investing.

4. Identify expenses that you can avoid or cut back.

For example, review your subscriptions, are you using that gym membership and all those streaming services.

5. If you are actively investing on an ongoing basis, don't stop.

This dollar cost average will be rewarded over time. As assets go down in price, you are purchasing positions at a lower cost. See the graph below which shows the tendency of the best and worst trading days tend to happen together

The best and worst trading days tend to happen together

If you are paying any attention to the news, it is hard to avoid the market’s volatility in 2022. Supply and labor shortages, due to numerous reasons such as Covid closures around the world, severe weather, transportation delays, an energy shock and war in Ukraine are all large factors.

It is normal to feel like we are in a terrible time, and the news cycle is not in the business of alleviating our fears. The graph below points to 25 years of historical and fear-inducing periods. It also shows how the markets reacted at the time, the gains that followed volatility and how long it took to reach previous highs.

10 Worst Single-Day Percent Declines for US Stocks 1981-2021

It’s possible that an inflationary environment will be around for a while. It may mean that it is best for you to be more cautionary in your spending or that expectations for growth are more muted. If you are currently investing, your dollar is buying assets at a lower price, which is always good for the longer-term investor. Just remember, it’s normal for the economy and the markets to go through tougher times. There will be a rebound, and you’ll want to be there when it happens.

Communication is important. I always welcome a discussion.

Karalyn Carlton