Everywhere you look these days, you’ll see the scary headlines: the stock market on a roller coaster ride, famous financial gurus telling you to be prepared for recession. A day doesn’t go by without someone asking me if the financial sky is falling.
It must be, right? It’s there in black and white, with charts and graphs to show the downward spiral.
Let’s see, how many times have I been through a downturn since I started my career…? Well, we had half a dozen big ones in the U.S. between 1980 and 2009, and what goes up always comes down.
All by way of saying that before you go online and hit “sell” in your 401(k) or trading account, take a deep breath. When markets decline, our gut reaction is generally to stampede to the exit door, forgetting the adage “sell high.” Panic selling might just be the worst thing you could do.
Instead of watching the sky, keep your feet firmly planted on the ground. Here are 12 ideas to help you stay grounded no matter where the economy is headed.
- Markets are cyclical. They don’t go up consistently. They are constantly pausing, resetting, correcting, or restructuring.
- IF you are a market speculator, begin with a clear understanding of how much you can afford to lose. Go in with a “sell” target price for both the upside and the downside and stick to it.
- Look at your current investments and your current situation in terms of your age and job status. Make sure your allocations are properly weighted to align with where you are now.
- Your ability to withstand risk when it comes to market volatility should not necessarily shift with the level of the Dow. Other factors, such as your job status or family situation, could move the needle in terms of risk, but otherwise, you should have the same risk tolerance whether it’s a bull market or a bear market.
- Check your liquidity. Make sure your emergency fund is robust and appropriate for your situation. If a recession might affect our job, start filling that sucker up as much as possible―
- Look at the level of debt you’re carrying. A recession gives you no relief from paying off what you owe, so keeping your debt low puts less strain on your cash flow. Interest rates may be going down further, so if you’re carrying student loans or car loans, check out lower interest options.
- Ditto for your mortgage rate: this could be a great time to refinance at a lower rate.
- Create a list of other fixed expenses: insurance, utilities, food, rent, fuel, etc. Then look for options that could reduce those expenses. For example, you can find savings by increasing the deductibles or co-insurance on certain policies (providing you have sufficient cash to absorb the risk), shift to a new utility provider that offers better rates, join a food co-op. Don’t be afraid to be creative in finding ways to shave dollars off your budget. If a downturn does come you’ll have plenty of company.
- Discretionary spending, by definition, is what you choose to spend. This can be a sticky area if you confuse “needs” with “wants.” During times of economic stress, it’s tough to make decisions about what you want versus what you really need. It’s better to spell out those choices for yourself before the sky falls.
- Find peace in the fact that you can control only what you can actually control. That doesn’t include the state of the economy.
- Take a media break. The media’s job is to keep you glued to the news, but not every headline is going to pan out as a crisis.
- If you’re losing sleep over the current markets, consider what would help. Hire a planner who can offer an objective opinion of your situation. Work with a therapist or counselor who can help keep your emotions in check.
You don’t have to live in fear and misery, even in a recession or difficult economic times. You can make meaningful improvements in many areas of your financial life regardless of where we are in the economic cycle.