The lightning-quick economic halt we’re experiencing due to the coronavirus pandemic means a recession is highly likely for the U.S.
Recessions are periods of economic decline that include an increase in unemployment and a drop in the stock market, the housing market, and the GDP for two or more quarters.
But this particular recession would be unique. Unlike the 2008 Great Recession (and many recessions before it,) this one would be set off by a pandemic instead of a deflation of assets.
The mass uncertainty surrounding this pandemic has some financial experts wondering if we will plunge into a depression at some point. No one knows what will happen because no one has experienced anything quite like this.
But remember, recessions are a guarantee. It’s part of the life cycle of our economy. Even more important: remember that it won’t last forever.
Keep that in mind as you set up a plan to weather this storm. Here are some ways you can invest your way through a recession:
If you have more than 10 years before retirement
If you are a younger investor, you have a bit more time for your portfolio to bounce back before retirement.
Typically, an 80% stocks and 20% bonds mix creates an environment for long-term investment success. Right now, try focusing on stocks instead when you buy.
For this time horizon, it may make sense to set your future 401k/403b contributions to all stock funds. As the markets drop, your portfolio will become more balanced (i.e. 50/50 split.) By purchasing all stock funds, it will help it return to your target allocation without doing a larger rebalance.
If you have less than 10 years before retirement
If you plan to retire by 2030, then it may make sense to purchase some stock funds. This will all depend on your current allocation, but if you are balanced then you may want to take 3-5% to purchase stock funds when the market is down.
Remember, you should have about 3-5 years in cash and safe investments as you approach retirement.
We expect the markets to return on those investments, so now is the time to allocate and invest in indexes.
Your portfolio has a balance of stocks and bonds to soften the blow when the markets go down. Once you’re in a situation like we are now, look into capitalizing on this opportunity.
Buy at a bargain, then hold steady through a recession
Besides adding some equities to your portfolio, the best thing you can do for your portfolio right now is to wait. Things are changing so quickly right now that the right move today could be the wrong move tomorrow.
Again, remember that a well-balanced portfolio is built to deal with economic ups and downs. The markets will rebound. Until then, ride out the storm as best you can without interfering too much with your portfolio.
If you’re struggling with managing your portfolio or concerned about the economic impact to your investments, I can help. Contact me here to set up a call.