Read articles about finances, saving and community news.
Our team of experts is ready to help you manage your wealth.
Access all the commercial banking resources your business needs to succeed.
by Stephanie Barnes
February 07, 2020
by Stephanie Barnes
February 07, 2020
According to a survey from the National Association for Business Economics of more than 200 economists, 72% of respondents expect a recession to hit the US by the end of 2021. The last major recession — which lasted from December 2007 to June 2009 — brought with it an increase in layoffs and a huge dive in the stock market, and the next one will likely have similar effects.
While no one knows for sure if the next recession will occur in the next two, five, or ten years, it's never too early to learn what not to do during an economic downturn to make sure you and your household remain financially stable. With that in mind, Business Insider reached out to experts to get the mistakes they think you should avoid making — just in case.
The stock market will likely take a dive during a recession. Despite the falling numbers, you should try to remain calm instead of quickly selling off your investments.
"The market is going to go up and down. That's just what it does," said Anna Keisler, a financial planner at SG Financial Advisors. "Making decisions out of fear or panic due to a recession, or the threat of one, can be a big mistake."
Keisler advised "avoiding the news when the market information segment comes on if it makes you anxious, and be careful with what news information you choose to watch and/or read." If you're serious about your investments, you should also avoid making major changes to your portfolio without careful consideration or speaking to your financial adviser.
While you might find yourself hesitant to part with your hard-earned cash as the market plummets, hoarding your money instead of investing might be a major mistake you end up regretting later.
"Watching the market drop doesn't mean you should stop contributing to your investments. In fact, you might benefit from stocks being cheaper than they previously were," said Justin Pritchard, a fee-only financial planner in Montrose, Colorado, and founder of Approach Financial, Inc.
"Make a plan, choose an investment strategy that's appropriate for your needs, and stick with the plan unless something changes in your life. Market losses probably shouldn't count as a 'change in your life' — it's just a natural and unpleasant part of investing for growth," he continued.
It's also worth keeping in mind that being too conservative with your investing could cause you to miss out on the "magic of compound returns, which may be critical to having enough money to maintain your lifestyle in retirement," said Ian E. Rea, CFA, CFP at Slate Peak Financial Services.
Many money management gurus and financial advisers recommend keeping three to six months' worth of living expenses stashed away in case of emergency situations, but Rea doesn't think that's enough if you end up losing your job.
"Do not just follow rules of thumb when thinking about how much to set aside," he said. "Instead, consider how long it might take to find a new job in a worst-case scenario. In particular, it is important to remember that there will be a lag of several weeks between getting an invitation for a first-round interview and actually getting your first paycheck in your new role."
Your fixed expenses are the ones that don't change much from month to month and typically include things like mortgage or rent, car payments, and insurance premiums. By contrast, your discretionary expenses are more flexible — like vacations, entertainment subscriptions, and dining out.
"Flexibility is always helpful, and that's especially true in a recession. If you can control how much you spend each month, it's easier to stay afloat, reach your goals, and avoid making unfortunate sacrifices," Pritchard said. "If you take on a large auto payment, a hefty rent bill, and other expenses that you need to pay every month, those may be a burden if a recession affects your income."
He said by keeping your fixed costs low, you'll have the flexibility to save money, which you can draw on later to help maintain your lifestyle throughout the recession. Pritchard also advised against borrowing money thinking you'll have more income later, because things might move slower than you think.
"Even though you should be decreasing your expenses during a recession, it's a mistake to eliminate your health insurance. You need this as a form of security for yourself and your family," said Sahil Vakil, CFA, CFP at MYRA Wealth.
If you do lose your job, you should have a plan of action in place. Scott Newhouse, a financial planner at Forthright Finances, suggested asking yourself the following questions in order to figure out your next steps:
"If the unimaginable happens and you or your spouse lose your job, emptying your retirement accounts often is the first option to buttress a non-existent emergency fund in order to maintain a dual-income lifestyle," said Mike Hennessy, CFA, CFP at Harbor Crest Wealth Advisors. "This should be the option of last resort."
When recessions hit, he said, stick to your habits and keep saving wherever possible.