What You can do to Prepare for a Recession

The current economic environment can make you concerned about what you can do during these challenging times.  There are several things that we can all do to prepare for a recession and to take advantage of the reduction in stocks prices.

  1. Make sure that you have a solid emergency fund. We typically recommend have at least 3-6 months of basic living expenses in cash and/or very high quality fixed income.  As we enter this recession, it may be wise to have 6-12 months of living expenses in cash.  If you are currently receiving social security, pension, or an annuity you may not need to have as much cash on hand as those payments are highly likely to continue through this recession.
  2.  Review your budget. There are always things that can be eliminated during times of financial stress. You’re likely already naturally reducing your expenses since you cannot eat out at your favorite restaurants, go to concerts, sporting events, or take a vacation.  It may be wise to make a plan for what you would change once we are past the social distancing period of our lives.
  3.  Make a plan for where to raise cash-to-fund distributions in case the emergency fund becomes depleted.  Life insurance policies, cash out refinances, home equity loans, and selling fixed income securities tend to be the best solutions during a recession as opposed to selling significant portions of your stock positions at discounted prices or taking a loan from your workplace 401(k) plan.
  4. Take losses and offsetting gains in order to defer taxes and rebalance your portfolio. Take advantage of the broad based decline in stock prices to diversify a concentrated position.  Up to $3,000 of losses may be used to offset your income for the year, thus reducing your tax burden for 2020.
  5. Make Roth conversions while markets are low. Roth conversions can be a valuable tax planning tool and its even more valuable to do the conversion in a year where you have less income or when markets pull back like they have thus far this year.
  6. If you have enough cash to make it through the recession, increase your retirement plan contributions. If you are already maximizing your retirement plans contributions, you should contribute extra savings into a brokerage account to buy stocks and bonds taking advantage of lower prices to buy more shares that you could a few months ago. 

During both economic booms and recessions we should all remember that having a plan that works during both is critically important.  We find that clients who work with us on financial planning and have collaborative discussions around asset allocation have less stress through recessions than those without a plan.   If you have any questions, or would like to engage in more comprehensive financial planning, please do not hesitate to contact us.

Stay safe and enjoy this time with your family.

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General Disclosure

This presentation is not an offer or a solicitation to buy or sell securities. The information contained in this presentation has been compiled from third party sources and is believed to be reliable; however, its accuracy is not guaranteed and should not be relied upon in any way, whatsoever. This presentation may not be construed as investment advice and does not give investment recommendations. Any opinion included in this report constitutes our judgment as of the date of this report and are subject to change without notice.
 
Additional information, including management fees and expenses, is provided on our Form ADV Part 2, available upon request or at the SEC’s Investment Advisor Public Disclosure site. As with any investment strategy, there is potential for profit as well as the possibility of loss.  We do not guarantee any minimum level of investment performance or the success of any portfolio or investment strategy. All investments involve risk (the amount of which may vary significantly) and investment recommendations will not always be profitable. Past performance is not a guarantee of future results.