US Could Accidentally Fall Into Recession: 3 Ways To Financially Prepare, According to Experts
Many are predicting the worst-case scenario for the U.S. economy next year: a recession. Some, including Bloomberg economists Eliza Winger and Anna Wong, foresee a 100% risk of recession by October 2023, according to the economic and financial indicators used in their modeling.
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While not all analysts are being as fatalistic, most have upped their odds of a recession within a year — or even half a year — as envisioned by the Mortgage Bankers Association (MBA).
On Oct. 24, financial investment leader Goldman Sachs warned of a forthcoming “accidental” recession if the Federal Reserve doesn’t heed caution with substantially hiking interest rates, per CNN. Citing improvements in the gap between supply and demand in the jobs market and the gradual ebbing of the economy, the financial investment firm is pleading with the Fed to be patient and not overly rely on its go-to inflation indexes — shelter and healthcare, which are expected to remain “uncomfortably high throughout 2023” — in determining upcoming rate increases.
“Too great a focus on lagging indicators, too little patience, or tightening too quickly to gauge the impact on the economy in real time could result in a recession that is not entirely intended,” Goldman Sachs said.
Inflation, which has hovered near a four-decade high all year, and a near-certain looming recession are contentious issues leading up to the midterm elections on Nov. 8. But whether or not the American population has faith that its government to turn things around, they’ll likely need to implement protective measures before the downturn begins.
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According to financial experts, recession planning is important, especially when the threat of one is so imminent. Aside from some common-sense actions that everyone should take — cutting frivolous spending, sticking to a budget, paying down debt, leaning on support from your network and financial aid opportunities — there are three measures you should take from a personal investment standpoint.
1. Start or Strengthen Your Emergency Fund
USA Today noted that an emergency fund can take years to build, but that shouldn’t stop you from starting one. If you are apprehensive, you’re not alone. A July 2022 Magnify Money survey found 68% of Americans don’t feel financially prepared for a recession and, per a 2021 Federal Reserve study, 40% don’t have enough money saved to cover expenses for three months in the event of a job loss or economic emergency. By tightening up spending and socking away money into a high-interest savings account, you’ll be ready for hard times. Three to six months of living expenses should be your goal, but even less is better than nothing.
2. Review and Diversify Your Portfolio
Speaking to Forbes, Sunaina Sinha Haldea, Global Head of Private Capital Advisory at Raymond James, suggested looking at markets outside of the United States and diversifying existing investments. “Increasing your dividend paying stock portfolio by investing in a dividend-centric ETF is a great way to do this,” said Haldea. “Move away from equities and bonds, both of which suffer in a stagflationary environment, to gold, commodities, infrastructure and other real assets.”
3. Don’t Stop Investing
A good review of your portfolio and its risk level is essential before a recession strikes, according to Wealthsimple. Most importantly, avoid the urge to start pulling out of investments at the first blush of insecurity. Pushing through concerns and continuing to invest through a troublesome cycle will put you in good stead when the markets eventually rebound, post-recession.
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Remaining financially stable during a recession won’t be easy, and unexpected pitfalls are certain to occur. But avoiding rash decisions and keeping a cool financial head will help you weather any recessionary storm.
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