Some economists think a recession is on the horizon. If a recession occurs, what should you do financially?
From Wall Street to the west coast, business and government leaders are paying attention to the possibility of a recession. Even if it doesn¡¯t happen, it helps to understand what it would mean for you, your job and the people you care about.
What is a recession? A shrinking economy. Instead of growth, you have fewer jobs, and decreased production of goods and services. Unemployment rises, the stock market suffers, and real estate values dip.
Gross domestic product (GDP) is considered the best indicator of a recession. The GDP is the estimated total ¡°market value¡± of the goods and services America produces. If the GDP goes down for five or six months in a row, you¡¯ve got a recession. So what should you do if one hits?
Tip 1: Stay at your job. Recessions mean layoffs, and few new openings. If you don¡¯t like your job, hang on ¨C because if you leave it, you might have to tighten your belt for months.
Tip 2: Put away the credit card. A recession is not the time to buy a sports car or a toyhauler, start a small business, or take a weeklong vacation. If you are carrying big credit card or loan debts, it¡¯s time to concentrate on paying them off. If you¡¯re about to pay off your mortgage soon, make sure you do.
Tip 3: Don¡¯t mess with your investments. In a recession, good investment principles still apply ¨C though you might want to put more money into fixed-income investments, like bonds and bond funds and certain kinds of annuities. If you own stock in an automotive company or a company that makes luxury items, these companies usually hurt the most in a recession. Big-box retailers and other sellers or manufacturers of food or clothing tend to do well in a recession, and their stocks also usually do well.
The real goal is to hang onto your money until the market improves. There¡¯s an old saying: ¡°Cash is king in a recession.¡±
Recession ¡Ù depression. The two shouldn¡¯t be confused. Most recessions end a year or so after they begin. In fact, recessions are really part of a cycle in the U.S. economy: roughly every six to 10 years, a phase of steady growth ends and a recession occurs. Tax cuts, increased spending and the actions of the Federal Reserve can nudge the economy out of a recession and back to health.
In the meantime, here¡¯s hoping the ¡°experts" are wrong and that the only thing we have to fear is fear itself. While the calendar says it¡¯s about time for a recession ¨C the last one occurred in 2001-2002 ¨C it would be nice to hold it off a little longer.
Bill Locklin, MBA, Certified Financial Planner
951-676-2010
www.blocklin.com
(Securities and Advisory Services offered through National Planning Corporation (NPC).
Member SIPC/NASD, and a Registered Investment Advisor)
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