From Fidelity

Key takeaways

  • Before making any big money moves, pause and reflect on what’s driving your choices. Knowing that you have a plan in place that accounts for good times and bad can be reassuring.

  • It’s always a good idea to review your spending and saving. If you feel nervous about the future, bolstering your emergency fund can help make sure you have cash on hand for emergencies.

  • Try to stick with your investment plan through stock market downturns. Missing the best days of the recovery can hamstring your long-term results.

  • The labor market remains a bright spot in the economy. Keep your resume up to date with your latest skills and accomplishments — just in case.

It’s hard to miss the fear-inducing headlines about a possible recession. They are almost everywhere. Fidelity experts don’t think the US is in a recession or about to head into one. But many investors are worried about the economy amid inflating prices and rising interest rates. No one knows what’s going to happen in the future, but it never hurts to prepare for the worst while hoping for the best.

During tough times, the strength of your financial plan can be tested in ways you may have not imagined. And that can cause some strong feelings — which can sometimes complicate financial decisions.

Here are 6 smart steps you can take now to manage your emotions and help recession-proof your finances.

1. Practice mindfulness to help make better money moves

Sometimes our natural reactions are not the most helpful. “Some people disengage from their finances in down markets because they feel anxiety at the thought of knowing how bad their situation might be. Others, meanwhile, engage more in down markets, spurred by feelings of fear into behaviors like panic selling,” says Brianna Middlewood, PhD, a behavioral research scientist at Fidelity.

That’s why it’s always important to keep your long-term goals in focus. If you find yourself checking out or tempted to cut your losses in the market despite a well-considered long-term investment plan, take a moment to reflect on what’s really driving your choice and if it’s in your long-term interest. 

Practicing mindfulness can help you develop the discipline you may need to avoid emotional money moves that you may regret down the road.

2. Get a financial plan or stress-test the plan you have

If you don’t have a financial plan, it can make sense to build one and adjust as needed along the way. Planning can help you see where you stand now and give you a roadmap to a financially secure future.

As part of the planning process, you can test the impact of various market and economic scenarios on your financial well-being, for instance, calculating the amount you may need to save to hit your major goals if some factors change.

“The thing I worry about are the big shocks to the system — like a recession and being laid off. You want to try to ensure you have enough liquidity to get through those periods,” says David Peterson, head of wealth planning at Fidelity. “With a plan in place, you can play around with estimates.

What if I get laid off and am out of work for 6 months? Where is money going to come from to cover essential expenses? And how might it impact my retirement plan? A plan can be modeled and estimate what 6 months with no income means for you.”

It can be a balancing act, saving and investing for the distant future while also taking steps to protect what you have today. Consider thinking about your financial picture in terms of 3 broad categories: preparing for emergencies, protection, and growth potential.

These 3 building blocks work together to help make sure you have money for unexpected expenses, a plan to protect what you have, and growth potential to reach your long-term goals.

3. Look for ways to spend less or earn more

In the short term, it’s very difficult to conjure up more money. If it were easy we’d all be doing it already. So spending less is the obvious lever to pull when casting around for more cash to save or to pay bills.

To get started, look at your spending versus your income. You don’t need to track every penny but having a rough idea of how much you’re spending and where can help you get started.

4. Bolster your emergency fund

An emergency fund can be a lifeline during hard times. Ideally, you should try to save enough to cover 3 to 6 months of essential expenses. Some people may want to save even more than that.

Don’t worry if your emergency fund isn’t quite up to that standard; 3 months’ worth of essential expenses is quite a lot of money to squirrel away. Get the ball rolling by saving $1,000 or one month’s worth of essentials and then keep going until you’ve hit a level that helps you feel secure.

It can make sense to keep a significant portion of your emergency fund in liquid savings too — that way you can easily access your money if and when it’s needed. “It doesn’t necessarily need to be all in cash but consider a relatively low risk investment that you can depend on if you do need to access it,” says Peterson.

5. Try to stay the course with your investments

Investing for the long term takes some belief that things are going to be OK in the future. Though it can be disconcerting and even upsetting, market volatility is a regular part of life in the stock market.

Looking on the bright side, the stock market has had more up years than down years historically. But there’s a trade-off. Stock prices don’t go straight up forever — they tend to fall a bit a few times per year.

Corrections of up to 15% may occur every few years. Sometimes the market goes down more than 20%. Those events tend to be rare but are not entirely unprecedented. A decline of more than 10% but less than 20% is called a correction. A decline of at least 20% from the market’s high point to the low is known as a bear market.

Historically the stock market has produced positive returns following significant corrections and bear markets. And that is one reason why it can be a good idea to stick with your investment plan through market ups and downs.

Because investors never know when the tides will turn, sticking with your investments has historically been a better bet than trying to time your exit and re-entry. Missing just a few of the best days in the market has the potential to hamstring long-term returns.

6. Update your resume and sharpen your skills

Slowing economic growth can mean layoffs but the good news is that the labor market is still going gangbusters as of July. Though layoffs have hit some fast-growing tech companies, the latest government employment data continues to reflect more job openings than workers. That doesn’t mean it’s always easy to find a great job, but the overall picture is still strong.

Job openings hit a high point in March and eased in the April and May readings of the Bureau of Labor Statistics’ Job Openings and Labor Turnover Survey. As of May, more than 11 million jobs remain open. Before 2021, the highest reading for the past decade was 7.5 million job openings in November 2018.

Whether you’re concerned about potential layoffs or you’re just ready to make a change, refreshing your resume with your latest skills and achievements can help make sure you’re prepared.

Do your best to cope with tough financial times

The best time to plan for worst-case scenarios is when everything is going great. Nothing lasts forever. Bull markets will end and so will bear markets; economic expansions will eventually contract into a recession, but growth will start again. To get your financial plan started, or to strengthen the plan you already have, consider working with a financial professional.

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About LRPC’s Monday Morning Minute

Lawton Retirement Plan Consultants, LLC (LRPC) Monday Morning Minute is crafted to provide decision-makers with important information about the economy, investments and corporate retirement plans in a format that allows a reader to consume the information in less than 60 seconds. As an independent, objective investment adviser, LRPC has access to many sources of research and shares the best and most relevant information with its readers each week.

About Lawton Retirement Plan Consultants, LLC

Lawton Retirement Plan Consultants, LLC (LRPC) is a Milwaukee, Wisconsin-based independent, objective Registered Investment Adviser (RIA) providing investment advisory, fiduciary compliance, employee education, provider management and plan design services to employer retirement plan sponsors. The firm specializes in sustainable investment strategies for retirement plans that incorporate Socially Responsible Investment (SRI) factors and Environmental, Social and Governance (ESG) elements. LRPC currently has contracts in place to provide consulting services on more than a half billion dollars in plan assets. For more information, please contact Robert C. Lawton at (414) 828-4015 or bob@lawtonrpc.com or visit the firm’s website at https://www.lawtonrpc.com. Lawton Retirement Plan Consultants, LLC is a Wisconsin Registered Investment Adviser.

Important Disclosures

This information was developed as a general guide to educate plan sponsors and is not intended as authoritative guidance, tax, legal or investment advice. Each plan has unique requirements and you should consult your attorney or tax adviser for guidance on your specific situation. In no way does Lawton Retirement Plan Consultants, LLC assure that, by using the information provided, a plan sponsor will be in compliance with ERISA regulations. Investors should carefully consider investment objectives, risks, charges, and expenses. The statements in this publication are the opinions and beliefs of the commentator expressed when the commentary was made and are not intended to represent that person’s opinions and beliefs at any other time. The commentary does not necessarily reflect the opinion of Lawton Retirement Plan Consultants, LLC and should not be construed as recommendations or investment advice. Lawton Retirement Plan Consultants, LLC offers no tax, legal or accounting advice and any advice contained herein is not specific to any individual, entity or retirement plan, but rather general in nature and, therefore, should not be relied upon for specific investment situations. Lawton Retirement Plan Consultants, LLC is a Wisconsin Registered Investment Adviser and accepts clients outside of Wisconsin based upon applicable state registration regulations and the “de minimus” exception.