Broker Check

Stay Calm and Weather Recessions

| January 02, 2019
Share |

In economics, a recession is a business cycle contraction when there is a general slowdown in economic activity. Macroeconomic indicators such as GDP, investment spending, capacity utilization, household income, business profits, and inflation fall, while bankruptcies and the unemployment rate rise. (Source: Wikipedia)

A recession is a matter of when, not if. Cycles happen. 

A couple of thoughts as the New Year kicks off:

  1. Economists are a bit like weathermen – completely accurate when looking back, but a little unsure looking forward.
  2. Weather and recessions come in various shapes, sizes and effects.
  3. The economy is only ONE factors in stock market movement. As we have seen this week, geo-political climate seems to be driving the ups and downs.
  4. There are tools to combat the weather and a recession.

For a moment, let’s follow the weather scenario. Driving home Christmas Eve from San Ramon, I was amazed by the variety of rainfall.  In places, the highway was dry without even a sprinkle, and in others there was a deluge.  When we called Chase on Christmas morning, the temperature was in the high teens….in Colorado.  A bit warmer here in Napa.  So too with recessions, there can be varying affects in other parts of the country including when they start and how long they last.  A place that relies on tourism will react differently to a recession than a spot where manufacturing is the main economic contributor.

Let’s talk umbrellas for a moment (protection from the effects of rain/recession).  1. Do you have one? 2. Is it available?  Umbrellas seem to hang out in the car all summer long, but when the rain starts, it rolls under the seat or ????. Some people dodge raindrops and head quickly for cover, unencumbered by an umbrella.  Some people bundle up and grab the umbrella and galoshes before they head out the door.  My grandkids go puddle stomping.

What can you do to protect yourself?

  1. Don’t panic. Most of the headlines I see lead with RECESSION but upon reading further they predict 4th Quarter 2019 or 2020.  Read modestly to stay informed and realize every economist has an opinion.  Two economists will have three opinions.
  2. How is your cash reserve? The money saved away for ‘rainy days’ should be three to six months of fixed expenses like rent, utilities, and phones. You can always delay a vacation or cut back a little, but you want a good cushion.  Your retirement savings is NOT a cushion.
  3. How can you protect your income? There are things you can do.  Make yourself indispensable to your employer.  Contribute ideas for success.  If you choose to find new employment, look before you leap.  An extra dollar of compensation as the economy is strong may look tempting. But don’t forget to look at the total package: health benefits, seniority and retirement fund matches.
  4. What to do about savings? Remember my grandkids and their puddle stomping.  If you are early in your career, perhaps 30-40 years until retirement, keep contributing and realize there will be a few of these economic cycles in your work life.  If you are at the other end, you might consider putting your savings into a safe, less risky investment.  Many companies offer a variety of funds to choose from.  I recommend continuing to contribute, even in stock related funds.  Systematic savings, buying at the bottom, makes good sense.
  5. Be in control of your budget and debt. I know this sounds like planning a ‘sensible meal’ during the holidays, but while being in control of foods choices can help blood pressure, being in control of your budget and debt will help with economic pressure. You pride yourself with holiday shopping SALES only to confound the savings with a 25% INTEREST credit card.

If you need someone to think it all through with, give us a call.  We can discuss options, pros and cons, and find something that will get you to the next economic cycle.  Remember: when, not if.

Last of all, Happy New Year and best wishes for 2019!

Share |