By Jeff Gilbert
COVID-19 may be primarily a health crisis, but it’s already had a significant impact on our economy. With thousands of businesses temporarily shut down and millions of people staying at home, we could be on the brink of a recession. And as some economists have predicted, the longer our economy is on pause, the harder this potential recession may hit. (1)
Regardless of what the future holds, here are 5 ways to financially prepare for the next economic downturn.
1. Don’t Panic
Right off the bat, stop and take a deep breath. Accept that there are going to be things that happen during a recession that are out of your control. Your portfolio will dip. Your work hours may be cut or you could lose your job altogether. The media will go on and on about the disastrous state of our economy. There will be moments of fear and doubt.
But instead of giving in to these feelings, focus on the facts. We’ve had 12 recessions since World War II—and we’ve recovered from all of them in an average of 11 months. (2) This too shall pass.
2. Build Up Your Cash Reserves
Nearly 70% of Americans have less than $1,000 in savings. (3) If you’ve kept your cash reserves pretty lean up until this point, now is the time to build them up. Make sure you have at least six months of expenses in an emergency fund. If you’re nearing retirement, you may want to bump it up to a year or two. Keep this money in a liquid savings or money market account where you have easy access to it when you need it.
One quick way to build up cash reserves is to cut out any unnecessary spending. This could be subscription services, shopping, vacations, and so on. You can also sell any items you no longer want or need. Remember, this isn’t forever. You can increase your spending once you’ve built up your savings. This is all about recession-proofing your finances so you’re ready for whatever comes next.
3. Pay Off Debt
Debt is an issue for most people even when the economy is at its best. But this issue magnifies when your investments take a hit and there’s a risk of losing your job. Make a plan now to pay off as much debt as you can. This could be anything like credit card debt, medical debt, car loans, and student loans. The more you pay off now, the fewer expenses you’ll have in the future (and the better off you’ll be if things take a turn for the worse).
4. Don’t Stop Investing
Our gut reaction is to sell when the market is shaky and buy when it’s strong. But this is the exact opposite of what we should do. In reality, a recession is the perfect time to buy investments at a steep discount.
The average bear market lasts 1.3 years with an average 36% dip. But bull markets usually last 6.6 years with an average 339% increase. (4) This means that if you buy when the stock market is at its worst, you’ll reap the benefits of huge gains when it rebounds (which it historically always has).
5. Diversify Your Skill Set
Losing your job is everyone’s biggest fear during a recession. Minimize your chances of a layoff by keeping your skill set sharp. Some common ways to do this include:
- Maintaining certifications
- Taking online classes
- Earning an advanced degree
- Taking on new responsibilities at work
Even if your company ends up downsizing and you’re on the chopping block, improving your skill set will make you more marketable to future employers, which will make it easier to find a new job.
How We Help
Recessions are inevitable. There’s nothing we can do to stop them. But there are concrete ways you can prepare for the next one. In addition to the suggestions above, one way to recession-proof your finances is to get unbiased advice and guidance from a financial professional.
At Balboa Wealth Partners, we’re dedicated to guiding you toward financial independence. Whether you need help managing your assets or creating a financial plan to help get you through the next recession, we’re here to help. Give me a call at 949-445-1465 or email me at [email protected] to get started.
About Jeff
Jeff Gilbert is the founder and CEO of Balboa Wealth Partners, a holistic financial management firm dedicated to providing clients guidance today for tomorrow’s success. With nearly three decades of industry experience, he has worked as both an advisor and executive-level manager, partnering with and serving a diverse range of clients. Specializing in serving high- and ultra-high-net-worth families, Jeff aims to help clients achieve their short-term and long-term goals, worry less about their finances, and focus more on their life’s passions. Based in Orange County, Jeff works with clients throughout Southern California as well as Arizona, Oregon, and Washington. To learn more, connect with Jeff on LinkedIn or email [email protected].
Advisory services provided by Balboa Wealth Partners, Inc., an Investment Advisor registered with the SEC. Advisory services are only offered to clients or prospective clients where Balboa Wealth Partners and its Investment Advisor Representatives are properly licensed or exempt from registration.
Securities offered through Chalice Capital Partners, LLC, member FINRA, SIPC.
Balboa offers advisory services independent of Chalice. Neither firm is affiliated.
____________
(1) https://www.brookings.edu/blog/up-front/2020/04/01/covid-19-and-the-economy/
(2) https://www.nber.org/cycles.html
(3) https://www.gobankingrates.com/saving-money/savings-advice/americans-have-less-than-1000-in-savings/
By Jeff Gilbert
Change is hard on everyone. And the changes that are happening daily due to the coronavirus pandemic, not to mention the roller-coaster ride our markets are on, are disrupting our lives, causing us to feel uncomfortable and worried about the future. We are living in unprecedented times and no one can predict what will happen or what our nation’s and world’s recovery is going to look like.
1. Check In With Your Advisor About Your Portfolio
Your advisor is educated about what’s going on and will be able to give you clarity on exactly what is happening to your portfolio. This is an important first step since you should feel confident that you have a well-balanced portfolio, based on your needs and your risk level.
2. Take Advantage Of Lower Prices By Maintaining Discipline
This quote by Warren Buffett is all too applicable: “Be fearful when others are greedy and greedy when others are fearful.”
In every stock market downturn, opportunities are waiting for those with the right perspective to see it. Where many people go wrong in volatile times like these is selling near the bottom of a bear market, staying on the sidelines during a good portion of the recovery, and then jumping back in closer to the next top. Put that together, and you not only lose money but also lose out on potential growth and compound interest from the time you were out of the market. Emotional investing will cost you.
It may seem counterintuitive, but keep investing consistently. When stock market prices are down, think of it as an opportunity to snap up some bargains before the recovery takes place. In the previous market crash of 2008/2009, the people who continued to invest strategically made a significant return on their investment.
3. Consider Tax Loss Harvesting
Tax loss harvesting is the strategy of selling a security that has experienced a loss. By realizing a loss, investors can offset taxes. The sold security is usually replaced by a similar one to maintain the desired asset allocation and expected returns. With the markets hitting low points, it might be an ideal time for you to sell something and take the loss, but then buy something to participate in the market’s recovery. If you look for the opportunity to invest in something similar or rebalance, you win and have a tax deduction to use for this year and potentially even future years.
Before doing this, talk with your advisor about how much of a difference this could make on your financial plan.
4. Look Into A Roth Conversion
Market downturns are the perfect time to convert to a Roth IRA and pay significantly less in taxes, not to mention we may be at the lowest tax rates we will see in our lifetime. Let’s say you have an IRA that used to be worth $100,000 and is now worth $75,000. You could convert this position now and pay less in taxes than what you would have paid when it was worth $100,000…25% less.
There are many factors to consider when deciding if a Roth conversion is right for you, such as your current income versus your expected retirement income, your projected minimum required distributions, the tax implications, current liquidity, etc. Making this decision is something you should discuss with your advisor.
5. Look For Unique Opportunities
A few other opportunities you could take advantage of with lower interest rates and stock prices are the following:
- Consider refinancing your home.
- Purchase future travel at a discount.
- Fund a 529 for your child’s college tuition with low market prices.
- Refinance any outstanding debt.
- Buy a home at a discount if you are renting.
Are You Ready To Take Control?
When this market volatility has passed (and it will), some will lose, some will break even, and some will get ahead. We at Balboa Wealth Partners want to see you get ahead, and we welcome the opportunity to help you make decisions that will enhance your finances so that when we go back to our regular routines, we do so with more clarity and confidence. To get in touch, email us at [email protected] or call 949-445-1465 to set up a phone or virtual appointment.
About Jeff
Jeff Gilbert is the founder and CEO of Balboa Wealth Partners, a holistic financial management firm dedicated to providing clients guidance today for tomorrow’s success. With nearly three decades of industry experience, he has worked as both an advisor and executive-level manager, partnering with and serving a diverse range of clients. Specializing in serving high- and ultra-high-net-worth families, Jeff aims to help clients achieve their short-term and long-term goals, worry less about their finances, and focus more on their life’s passions. Based in Orange County, Jeff works with clients throughout Southern California as well as Arizona, Oregon, and Washington. To learn more, connect with Jeff on LinkedIn or email [email protected].
Advisory services provided by Balboa Wealth Partners, Inc., an Investment Advisor registered with the SEC. Advisory services are only offered to clients or prospective clients where Balboa Wealth Partners and its Investment Advisor Representatives are properly licensed or exempt from registration.
Securities offered through Chalice Capital Partners, LLC, member FINRA, SIPC.
Balboa offers advisory services independent of Chalice. Neither firm is affiliated.
As global markets continue their roller coaster ride due to fears surrounding the coronavirus, our most recent bull market officially turned into a bear market. But what does that mean? And are we on the verge of another recession like the one we had in 2008?
In light of all these concerns, today we’ll share what you need to know about recessions and bear markets. If you are worried about your portfolio, we understand and we’re here to help. Feel free to contact our office to get answers to your specific questions.
What Is A Bear Market?
A bear market happens when an overall market benchmark, such as the S&P 500, dips by 20% or more from its most recent high. (1) This is often accompanied by negative investor sentiment and more selling than buying.
It’s important to highlight that normal stock market volatility isn’t an indicator of a bear market. Normal dips and swings are necessary for long-term growth and shouldn’t be cause for concern.
What Is A Recession?
A recession is defined as two consecutive quarters of economic decline (emphasis on the word economic). They’re measured using factors such as the employment rate, gross domestic product, bond yield curves, and other factors independent of the stock market. (2)
Economists declare recessions retroactively. For example, the Great Recession wasn’t confirmed until November 2008—11 months after it started. (3)
Bear Markets Vs. Recessions: How Are They Related?
A bear market relates to the stock market. A recession relates to the economy. Contrary to popular belief, the stock market is not the economy. What drives the stock market is investor emotions—which, as we all know, can be fickle. As humans, we have a tendency to be overly optimistic when there’s no data to support our feelings, and pessimistic when data looks great.
Recessions are the complete opposite. Tangible factors determine the state of our economy. There’s no emotion involved. Which begs the question: Why do people correlate recessions and bear markets?
If you look back on history, recessions and bear markets have usually occurred around the same time. Of the last 11 S&P 500 bear markets we’ve had since 1957, 63.6% came after a recession. (4) The two go hand in hand, but they’re not the same.
Not even highly educated economists can predict a bear market or recession. There’s a lot of speculation that goes on in the news, but it’s just that—speculation.
What Should Investors Do?
The best thing to do as a long-term investor is to find an optimal portfolio that balances your comfortable level of risk and return. The actions you take in the stock market should be independent of whether economists think we’re entering a bear market or recession.
And as many financial experts have advised: Your 401(k) right now is like your face: Don’t touch it. Selling due to fear when the market is down locks in your losses and can do long-term damage to your financial future.
Speak With Your Advisor
Whether you’re new to investing or an experienced investor, it’s helpful to consult with an objective third party during times like this. Human nature causes us all to act out of emotion when our accounts go down. As an independent firm, we put your best interests first. We seek to serve as a support system for our clients, helping them make informed financial decisions that are not driven by emotion.
We’re Here For Your Friends And Family
If you have friends or family who need help with their investments, we are happy to offer a complimentary portfolio review and recommendations. We can discuss what is appropriate for their immediate needs and long-term objectives. Sometimes simply speaking with a financial advisor may help investors feel more confident and less concerned with the most recent market activity.
About Jeff
Jeff Gilbert is the founder and CEO of Balboa Wealth Partners, a holistic financial management firm dedicated to providing clients guidance today for tomorrow’s success. With nearly three decades of industry experience, he has worked as both an advisor and executive-level manager, partnering with and serving a diverse range of clients. Specializing in serving high- and ultra-high-net-worth families, Jeff aims to help clients achieve their short-term and long-term goals, worry less about their finances, and focus more on their life’s passions. Based in Orange County, Jeff works with clients throughout Southern California as well as Arizona, Oregon, and Washington. To learn more, connect with Jeff on LinkedIn or email [email protected].
Advisory services provided by Balboa Wealth Partners, Inc., an Investment Advisor registered with the SEC. Advisory services are only offered to clients or prospective clients where Balboa Wealth Partners and its Investment Advisor Representatives are properly licensed or exempt from registration.
Securities offered through Chalice Capital Partners, LLC, member FINRA, SIPC.
Balboa offers advisory services independent of Chalice. Neither firm is affiliated.
___________
(1) https://www.investopedia.
(3) https://www.usatoday.com/
Balboa Wealth Partners
Newport Beach, CA Office
130 Newport Center Drive, Ste. 240
Newport Beach, CA 92660
Scottsdale, AZ Office
6263 N. Scottsdale Road, Ste. 265
Scottsdale, AZ 85250
Disclosures
Balboa Wealth Partners, INC. is an SEC-registered investment advisor. Advisory services are only offered to clients or prospective clients where Balboa Wealth Partners, and its representatives are properly licensed or exempt from licensure.