Perhaps you are reading about the impending market correction. Are you reading about all the reasons the market will fall and our economy is due for a correction? Have you seen the charts and graphs and read about negative interest rates around the world, amount of debt we have, the lack of ability of central banks to provide sustainable GDP growth, and how we simply can’t sustain this run of a bull market?
So the question becomes, who cares?
The question is… what should you do and what can you do about it?
Here are my top 10 (plus one) tips to prepare for a recession:
#1 Don’t Panic
- If you panic, you will be tempted to do things rashly in a crazy environment. You must be calm and collected to make intelligent decisions.
- Panic leads to overreacting or being suckered by scams that will run rampant during these tougher times. You can make it, if you don’t panic.
#2 Cash out: Get out of the market
- It’s the first thing to go… A market crash will be the sign everyone looks for to say we are headed into tougher times. Why wait? Get out now, if you can.
- Sell Your Winners: Cash out on your winners and hold onto the money in your investment account. If you have minor losers, consider getting out of them as well. Medium to significant losses in stocks can be held, if you like.
- Put your 401(k) retirement holdings into a Money Market Fund. This will a phone call and about 20 minutes of your time. Then, you will be safe(r). Remember, a Money Market Fund is like investing in CDs or T-bills, just as safe as putting it into a bank, but still investing and MUCH safer than keeping it in your “I’m retiring in 2045 plan.” You can always put it back in whenever you like. This is not a permanent move.
#3 Get rid of Debt
- Reduce it, at least
- Remember: Get rid of the Highest Interest Rates FIRST (even if it is a smaller amount of debt). It’s smarter and will save you more in the long run.
- Think of it this way: If I lent you $10,000 and told you that part of it was at a 15% interest rate and the other part is at a 32% interest rate, which part would you want to pay off first? Does it matter how much of the $10,000 was at 15% and how much was at 32%? No, you owe all of the money, so pay off the higher interest rate first!
- Keep your job. Don’t look to switch positions just yet.
- Solidify yourself as a valued employee by going the extra mile. A solid paycheck is important in a down economy.
- If you can pick up work on the side, all the better. However, don’t do this at the cost of your main income. You don’t want to wind up with no income.
- Stop eating out – Yes, that includes daily coffee at Starbucks or the like.
- You don’t need to count your pennies. Just see what is “extra” in your lives that you can reduce or cut out. Good examples are: cable tv, phone plans, fast food restaurants, or hobbies.
- Have some time? Clip some coupons or Bargain shop online. Look for deals on your necessary items.
- Look over your bills and plan what you can reduce (or cut) from your list of “extras” before talking about not running the heat in your home and running around with several layers of sweaters!
#6 Don’t Stockpile
- Why would you do this when prices are high? They are Inflated right now. Don’t go out and buy food to put in your basement when prices will soon drop. This is not the end of our economy and our money will still be there. Give it time.
- That also means don’t put your money under the mattress. You are going to need it and your money is insured through the banks. Loss of your money due to a fire is REALLY hard to prove and nigh impossible. Just keep it in the banks and not in the stock market, for now.
#7 If you are a Company
- Get into Cash. You may also consider borrowing from banks now while money is relatively cheap with interest rates being as low as they are. Businesses fail in recessions because they don’t have Cash available to ride out the bumpier parts. You need to take the small risk to borrow now… you can always just pay them back right away!
- Stop expanding and start shoring up your profitable ventures. There is no point spending when you should be looking to Just. Plain. Survive.
- Don’t look for cheaper labor. Keep your employees by taking care of expenses and cutting expansion. You will find that you will now have dedicated employees working hard for you.
# 8 Keep saving for retirement
- Put a little away each month. It will add up.
- Keep putting into you 401(k), especially if you are lucky enough that your company matches up to a certain amount. Would you make a deal with a stranger that if you save a certain amount each month they will Double your money? That is what is being offered. Take advantage of it!
#9 Have kids?
- How do you best save for your kids? Make yourself financially secure. Your kids can take out cheap student loans.
- Talk about how things will be for everyone and how your family must tighten spending a bit. Kids will understand that food, shelter, and essential clothing is more important. See if they can help choose what to reduce or cut. What hobbies can be limited or put on hold or what sports/activities are only somewhat enjoyable and can be put on hold for a year. Hard choices, but it teaches valuable lessons of prioritizing things in life and putting the important thins in perspective.
#10 Research Stocks for the pullback
- Diversify your new portfolio when the market corrects itself and begins rising.
- Play it safe, the first pullbacks are typically feints and the market will continue to slide. Waiting until it is most definitely on the rise and put your money in the hands of the professionals.
Extra #11 Are you Too Late?… (If it’s on T.V., It’s too late)
- First things first. Can you wait? The market will correct itself again and will slowly rise over the next 4-8 years after a fall. So, if you can patiently wait, your stocks (in general) should recover.
- If not, then you may have to take some losses… just try to take small losses and not very often if you can. There are government programs to help and, hopefully, the government will create more jobs and opportunities for work like rebuilding crumbling infrastructure.
What if this was all hype and nothing happened?
- You budgeted: Always a good thing!
- You prioritized your spending in your house and with your kids: Always a good thing!
- You worked hard at your job to become a valued employee: Always a good thing!
- You didn’t panic. Always a good thing!
- You cashed out of the market – nothing changed in the market, so just get back into it! – It didn’t change, so now you have more of a choice in what you want to invest. Yet another good thing!
Why risk the recession, when doing these ten things can mitigate that risk while improving your life and outlook?
In short, it is worth pulling out and preparing for a recession NOW. You take little risk in doing it and prepare for the worst. If the worst happens you are fine, if it doesn’t, you are still fine.
This article was written in light of the upcoming 2016 election, pending Federal Interest rate increase, and world/US markets in general.