If you are like me, you are hearing plenty of talk about a recession.
- Will there be a recession?
- When will the recession hit?
- How deep will the recession be?
- How long will the recession last?
- And on, and on.
Of course, the real question is, “Will a recession hurt my progress toward my financial goals?”
As a financial planner who is focused on my clients’ best interest at all times – a fiduciary – that’s what I am focused on. If you have questions about your personal situation and would like to visit with me, I would be honored. I am always happy to help. Just follow this LINK to find a time that works for you.
First, remember that recessions are common, normal, routine, and . . . temporary.
Since July 1953, Morningstar Direct and Standard and Poors data shows:
- We have had 11 recessions. About 6 years and 6 months apart.
- Average market declines in the 6 months LEADING UP to a recession is -1.0%
- Average market decline DURING a recession is -3.1%
- Average recession lasts 10 months. (Based on data since 1945 from the National Bureau of Economic Research.)
- Markets performance from the start of a recession over:
- the next 3 years is 33.4%
- The next 5 years is 50.6%
So, we can see that recessions are pretty common. And that they really aren’t that severe. Remember that in EVERY year since 1980, we have had an average S&P 500 index decline of 14.3% at one point during each year, AND we averaged 8.7% annual total return over that time.
Three Things To Do
FIRST, Clarify Goals. Think about your financial priorities and timeline. Consider your most important goals. Ask yourself if those goals are coming up in the next month, year, or two.
If they are, you should confirm that you have adequate cash, probably in a low-cost money market fund, to cover those priorities.
If not, then you can keep the money invested in a mix of investments appropriate for your timeline.
- Goals in 3 to 5 years should be in a balanced allocation with some stocks and some income investments.
- Goals farther out than 5 years can remain in a diversified stock allocation.
SECOND, Review Your Big Picture. As you consider the next recession, it’s a great reminder to review your overall financial plan. Are you still on track to meet your Major Life Goals? Are you saving enough? Too much? Are you using the correct investment accounts? Are you paying too much in taxes? Do you own the right mix of investments in each account?
A careful review of your entire financial plan is a great bit of proactive insurance against a big mistake. Avoid the temptation to overreact. Research shows that generally, people do more damage to themselves trying to “outsmart” a recession than by riding out a recession.
“Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves.” – Peter Lynch
THIRD, Stay Patient. Remember that for most of us, our most important financial goals are 10, 20, or even 30 years away.
- If you are 50, you may retire in 10 or 15 years, but even then, you won’t need to spend all your money. You will want your money growing steady over the next 40 years.
- If you are 70, you are likely just starting to take Social Security income. So, you have that added source of guaranteed income. And you will still need to draw on your investments over the next 20 years. Maybe, you even plan to pass along some of your investments to the next generation beyond that.
Most of us can afford to be patient. If you have a fiduciary financial planner. If you have a decent plan. If you own a reasonable mix of investments, then you can just wait out the next recession. You will very likely be well rewarded.
“The stocks market is a machine that transfers wealth from the impatient to the patient.” – Benjamin Graham
Of course, the details of your situation are unique. So, if you want to talk in specifics about your investment accounts, I would be honored to visit with you. As a fiduciary financial planner, I’m always an advocate for my clients. I love talking with new people. Reach out and we can have a get-acquainted visit. Just follow this LINK to find a time that works for you.
Yes, I am a CERTIFIED FINANCIAL PLANNER™ 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.