Recession Proof

The past few weeks have seen more than the usual amount of pundits calling for a recession.  The problem with forecasting a recession is that (1) most of the time folks are wrong and (2) we don’t know we’re actually in a recession until it’s already started - or sometimes after we’ve already emerged from it.  

I’m not speculating when the next recession will begin (aside from using a definitive WHEN vs a questionable IF), but I do like to encourage clients to think about personally taking steps to make themselves “recession-proof.”  Disclosure: it’s not rocket science, and it's also - like everything else - not 100% guaranteed.   

First: make sure you have enough cash on hand to weather a season of either decreased income, or worse - a loss of income.  Depending on your job (self-employed vs W-2, huge corporation vs mom and pop store) you might want to increase your cash reserves - money that can be easily accessed and not subject to much risk.

Second: emotionally prepare for it.  I hope we never see another 2008-09 event again, referred to as The Great Recession, but there’s no guarantee we won’t.  Being emotionally prepared is arguably just as important as being financially prepared.

Third: unless you envision needing your investments within a 3-5 year time period, don’t necessarily change your asset allocation in your portfolio.  A recession and stock market returns aren’t necessarily correlated.  Ben Carlson points out that the S&P500 has had 20 bear markets (down 20% or worse) and 27 corrections (down 10% but less than 20%) since 1928.  Of those 47 combined events, 31 of them occurred outside a recession.
Interesting Resources 

1. - Market Volatility: A Return to the Old Normal 
Last year was a dangerous year for investors - because while the S&P500 returned a whopping 21.8%, it did so with hardly any big down days.  It lulled us to sleep.  Well, 2018 was the wakeup call.  US markets are still mostly positive for the year as of this writing, and this article was a great reminder.  On an average year, the S&P moves by 1% or more on 52 trading days.  Last year, it did so on 9 trading days.  This year so far there has been 56.  

2. The Irrelevant Investor -  A Mostly Random Walk Down Wall Street
Great piece making a correlation to crowds clamoring over free T-shirts at Knicks game they wouldn’t pay a dollar for on the street and crowds in the investing space. People act differently in crowds, and this spills into investing behavior, especially when it’s fearful.  “Bull markets are not defined by wild buying frenzies. There was not a single +3% day for the Dow from 1992 through September 1997. Bear markets on the other hand are littered with them. From 1945-today, when stocks gain 3% in a day (N=103), the Dow is in an average drawdown of 24%.

3. Vanguard - Enduring Volatility: Two Charts
More great perspective in this brief article by Vanguard.  As the chart below shows, the stock market has a 54% of being positive on any given trading day.  However, over long periods of time that probability increases dramatically.
Twitter - @Year_Progress
Talk about simple yet effective.  This account simply visualizes the progress of each year, one tweet at a time.  It’s a great reminder to live in the present (as of this writing, 2018 is 95% over - which is staggering to me).
As always - thanks for reading.  I love the conversations these emails spark, so please hit Reply and let me know your own thoughts on recession-proofing your own financial situation.  

Also, and I hope this isn't misunderstood as a sales call, I'd just like to be clear: I received a few inquiries from clients this week asking about me taking on new clients.  The answer is yes - but I'm just postponing the start of those relationships until the new year at this point.  There's still some room in the Fident Family.  

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