How To Invest During a Recession? Just Ask a Greeneville, TN CFP®
By some measures, the U.S. is approaching a recession. Inflation is running at a 40-year high. The U.S. Federal Reserve has steadily raised interest rates this year. Higher interest rates and inflation can cause consumers to curtail their spending. Since the consumer fuels a great deal of economic activity, curtailed consumer spending has the potential to tip us into a recession.
Major indices have reached bear market territory; a drop of 20 percent or more, and continue to be choppy.
In our view, the possibility of a U.S. recession remains slightly elevated. At any given point in time, the U.S. runs a 25 percent possibility of entering a recession. Right now we are at a 30 percent to 35 percent possibility of a recession.
There are many things that could push us over the tipping point. Reckless government actions; continued severe supply shortages; a sudden, unexpected large drop in consumer spending, and more.
Overall, 2022 could be a very rough ride for the foreseeable future. At Sapiat Asset Management we have been and continue to take actions to position our client’s portfolios for eventual recovery.
What To Do During a Recession
Inflation, bear markets, and recessions (in many cases) are caused by irresponsible government actions (both ours and foreign governments). Russia’s invasion of Ukraine, for example, has driven inflationary increases in energy prices, because Russia is a major oil producer, and in bread, because Ukraine is a major producer of wheat.
Inflation is also being driven by irresponsible government spending, geopolitical issues such as China’s Zero Covid policy, U.S. consumer demand, and supply shortages.
It is also possible that the Federal Government, via its hiking of interest rates, is likely to ease the U.S. into recession. The Fed sees its main battle as reining in inflation, and a recession does ease inflation, however painful for U.S. consumers and businesses it may be.
But in the end, none of these things are within our control (or anyone’s control), so let’s concentrate on what we can control and stop worrying about what we can’t control.
The first thing we encourage investors to manage is perhaps their own reactions to economic and financial news. A slide in stock prices of 20 percent may look frightening, as can noticeably more expensive prices at the grocery store and everywhere else.
But the fact is, this is not the first time the U.S. has dealt with high inflation. This is not the first or last bear market. We must focus on what we can control: spending, savings, and investing.
In general, through any financial downturn (and upturn, for that matter), most investors are able to weather the storm if they have a plan. Discuss your goals and create a comprehensive financial plan with a CERTIFIED FINANCIAL PLANNER™ Professional in Greenville, Tennessee. Folks who work with financial advisors are typically more confident about weathering financial storms, so a CERTIFIED FINANCIAL PLANNER™Professional can ease your mind as well.
Focus on Spending, Savings And Investing
Ultimately, a well-qualified financial advisor will tell you the following about what you can control.
Investors can control how much they are saving and investing. Most U.S. equities are trading at a very deep discount right now. That means stocks are trading low — and smart investors buy low.
Not only that, but with inflation running at more than 8 percent, investors may not be able to rely on bonds to keep their investments ahead of the erosion in purchasing power caused by inflation.
Both markets and the economy tend to be cyclical. They both experience good and bad periods of time. Both good and bad times are usually temporary, but good times far outnumber bad times. Approximately 75 percent of the time the markets and economy are doing well over the long term.
In our view, inflation is the economic boogeyman in 2022. Inflation may continue rising this year and it may make sense to reach out to a financial advisor in Greeneville, TN to obtain specialized financial advice for your situation.
As anticipated, the electric vehicle market and cryptocurrency support industries are very volatile. Even so, depending on your risk tolerance and retirement horizon timeline these types of investments may make sense.
Don’t wait for the economy to get better before investing. The “markets” are forward-looking. They typically act in anticipation of future economic activity. Individual investors are usually wrong about their assumptions of future economic activity.
The smart money buys as much as it can during bear markets and corrections. J.D. Rockefeller said “…the best time to buy is when blood is running in the streets …”; i.e. buy low.
Personal Spending and Personal Savings
A CERTIFIED FINANCIAL PLANNER™ Professional can help you manage personal spending and personal savings during a recession. In Greenville, TN the professionals at Sapiat Asset Management can help you develop a budget so that you can identify areas of potential spending management and any issues in your way of managing your spending.
We can always control how much we are spending. We can cut back on our spending in order to invest. Those who have already retired can cut back on spending in order to help preserve investments for a quicker recovery. There are a lot of things we can control to our benefit, but the economy isn’t one of them.
We should minimize personal spending during down markets so that we minimize withdrawals from our investment accounts (selling low).
Investors may want to maximize saving and investing during down markets (buying low).
Keep following your financial plan. Minimize personal spending as much as possible. Save and invest as much as possible. Make sure your investments have really good growth potential.
Consult a CERTIFIED FINANCIAL PLANNER™ Professional
Remember, there is nothing comfortable about a bear market or a recession. But the financial advisors at Sapiat Asset Management can help you manage what you can control as financial storms threaten.
At Sapiat Asset Management we look forward to discussing your goals and devising a spending, savings, and investment plan to not only weather bear markets and corrections, but also so that you are prepared for recovery.
We can also provide insight on tax strategies, obtaining both short- and long-term financial goals, and more. Connect with us today and set up a consultation.