You have no doubt heard much talk about the risk of a coming recession. Yes, I think we can expect a recession. The only question is when. Most of the experts I trust are talking about 2023 to 2024 as the most likely time for a full-blown recession.
Should you worry? Does a recession mean that your financial goals will be derailed?
I don’t think full-blown worry is warranted. I would say, you should be thoughtful about your financial priorities and cautious as you make financial choices. I don’t think that a recession automatically means that your financial goals will be unmet. I suppose it could be that some of your goals might be pushed back, maybe. We shall see.
Regular readers of this space will find the following to be familiar.
I always tell my clients to be clear on what money they will need to spend in the next few months. Keep that money in cash, in a savings account, at the bank. If you have money that you will need in three, four, or more years, that money should be invested in a mix of quality US stocks.
If you have cash on hand for your priorities over the next three years, you should be able to weather most market corrections, even a recession, without the need to sell securities in a panic.
There are always events that cause concern about investment markets and their future prospects. The chart below illustrates all the bad news we have seen since 2017. And it shows how the U.S. stock market just continues to grow in value over time.
It’s Always Something with the S&P 500
So, what exactly counts as a recession? Economists tell us that a recession is a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales. A recession begins just after the economy reaches a peak of activity and ends as the economy reaches its trough.
Between trough and peak, the economy is in an expansion. Expansion is the normal state of the economy; most recessions are brief and they have been rare in recent decades.
When you talk with economists about the health of our economy and the chance of a recession they tend to refer to some, or all, of the 12 economic factors shown in the chart below. For now, most of these factors are favorable.
Economic Signals Remain Good
Markets Generally Go Up
History shows that since 1926, markets have delivered positive returns 3 years out of 4. So, any negative market performance is not likely to last long.
There is certainly plenty to think about. And every family’s situation is different. If you would like to talk with me about how a recession might impact you and your financial goals, I would be honored to be of service. Follow this LINK to find a time that works for you.
If you would like to talk with some other experienced, well-trained, fiduciary financial planners, a great place to start is to talk with a couple CERTIFIED FINANCIAL PLANNER™ professionals.
To find a CFP® professional near you, start your search here.
As you visit with financial planners, I suggest a couple things to check:
- Is the advisor always the client’s advocate – a fiduciary advisor?
- Is the advisor paid by clients, not financial product manufacturer or distribution network? That would be a fee-only advisor.
These two points help assure that you are working with a professional who is committed to your best interest at all times. It seems sort of obvious to me that a professional would work in this way, but it’s not automatic.
A fiduciary, fee-first, CFP® professional can help you make great retirement income choices and develop a comprehensive financial plan that is driven by your goals and priorities and addresses all aspects of your financial life. With a big-picture approach, you will be better prepared to understand your options at every step along the way.
Yes, I am a CFP® professional. I’m always a fiduciary and I work on a fee basis. And yes, I’m still taking on a few great families to be part of my financial planning practice.
If this article has you thinking about your own circumstances, contact my office at firstname.lastname@example.org. I am always happy to meet with people who are working on their retirement plans. Dunncreek Advisors does not provide legal or tax advice, nor is this article intended to do so.