Smart Financial Moves to Make Now

1. Increase Your Emergency Fund

Aim for saving at least 6–12 months of essential expenses in a high-yield savings account. During times of layoffs, competition for jobs intensifies, making it harder to secure new employment.

2. Reevaluate Your Budget and Cut Unnecessary Expenses

Conduct a thorough review of your spending habits. Large expenses like car payments, mortgage, or rent are obvious, but smaller recurring costs can add up. We live in a subscription economy; the average consumer spends over $200 monthly on subscriptions, many of which go unused [i]. Additionally, Americans spend approximately $3,000 annually dining out [ii]. Identifying and reducing these expenses can free up significant funds. Some subscriptions, such as internet services, may also be negotiable.

3. Strengthen Your Professional Network

A robust network can provide job leads, references, and support during uncertain times. Networking increases your visibility in your industry, potentially leading to new opportunities. It also offers access to diverse perspectives and advice, which can be invaluable during a job search.

4. Diversify Your Investments

Ensure your portfolio isn’t overly concentrated in one sector. A well-balanced mix of investments, including stocks, bonds, and other assets, can help mitigate volatility. Diversification spreads risk and can lead to more stable returns over time.

What NOT to Do During a Recession

1. Avoid Panic Selling

Panic selling can lock in losses and prevent you from benefiting from potential market recoveries. Historically, markets have rebounded over time, and staying invested is often more beneficial. In fact, institutions like Morningstar, Fidelity, and The Hartford estimate that missing those recovery days, depending on the time frame, could result in a portfolio that is between 40% and 56% lower when compared to just leaving it in the market [iii].

Per J.P. Morgan, being out of the market on the 10 best days between 2005 and 2024 would have resulted in an average annual return of just 6.1%, compared to 10.4% if fully invested. That’s equivalent to having invested $10,000 and ending with only $32,871 instead of $71,750 [iv].

2. Refrain from Withdrawing from Retirement Accounts

Early withdrawals can incur penalties and reduce the compounding growth essential for long-term financial health. Additionally, tapping into retirement funds can jeopardize your future financial security.

3. Postpone Major Purchases

Steer clear of buying big-ticket items like cars or luxury goods during economic uncertainty. Preserving cash ensures you have funds available for essential needs.

4. Avoid Accumulating High-Interest Debt

Taking on new debt, especially with high-interest rates, can strain your finances during a downturn. Focus on reducing existing debt to improve financial stability.

Why Staying Invested Matters

Timing the market rarely works in investors’ favor. In fact, seven of the 10 best days over the past two decades occurred within just two weeks of the worst days. This means panic-selling during volatile periods often leads to missing critical rebounds. Maintaining a diversified investment strategy and using dollar-cost averaging helps mitigate these risks and support long-term portfolio growth [v].

Final Thoughts on Financial Preparedness

While we’ve observed some weaknesses in spending and the markets, we have not yet met the definition of a recession. Federal Reserve Chair Jerome Powell recently acknowledged economic uncertainty, noting that inflation remains elevated, growth forecasts have been revised downward, and potential interest rate cuts could be on the horizon. This underscores the importance of financial preparedness.

Maintaining a diversified investment portfolio, practicing dollar-cost averaging, and avoiding panic-driven decisions remain essential. If you have any questions or need personalized advice, contact us today.

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[i] https://www.cbsnews.com/newyork/news/experts-suggest-taking-stock-of-how-much-your-monthly-subscriptions-really-cost-before-the-end-of-the-year/

[ii] https://www.usfoods.com/our-services/business-trends/american-dining-out-habits-2023.html

[iii] https://www.morningstar.com/funds/11-takeaways-our-research-missed-investor-returns
https://www.fidelity.com/bin-public/060_www_fidelity_com/documents/dont-miss-best-days.pdf
https://www.hartfordfunds.com/practice-management/client-conversations/managing-volatility/timing-the-market-is-impossible.html?ite=7093&ito=3289&itq=9eafbf20-07e0-46bb-9618-d9f67984d7cc&itx%5Bidio%5D=22126813

[iv] https://am.jpmorgan.com/us/en/asset-management/institutional/insights/retirement-insights/guide-to-retirement/

[v] https://foolwealth.com/hubfs/one-pager/timing-the-market.pdf