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5 actions to take now ahead of a possible recession

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A collage of a piggy bank and money. — Getty; Rebecca Zisser/BI

After years of the US economy dodging a downturn, recession fears are percolating.
Uncertainty over tariffs and government layoffs has dimmed the economic outlook and fueled market instability.
Here’s what financial planners told BI about how nervous people can prepare for a recession.

Recessionary fears are gripping Wall Street, causing stock prices to plunge and economic outlooks to sour.

Investors are grappling with the uncertainty of President Donald Trump’s agenda of implementing sweeping tariffs and firing enormous swaths of the federal workforce.

On Friday, the Nasdaq 100 officially entered correction territory,

down 10% since mid-February. The S&P 500 is down 7% over the same time period.

Meanwhile, calls are growing for the US economy to enter a downturn, with some forecasts even predicting a period of stagflation, a dire combo of low growth and high inflation.

So what’s one to do in the face of such pessimistic views of the market and the economy?

Business Insider spoke with financial pros to hear what they say people can do to prepare for a possible recession.

This is crucial.

As people scan the headlines, fear can be a powerful motivator to take drastic measures. But it’s important not to act impulsively or be overly emotional about your plan and the actions you take that could impact your life.

Gina Bolvin, president of Bolvin Wealth Management Group, said because GDP data is backward-looking, it’s possible that the economy will emerge from a recession before we even learn one has officially occurred.

From an investment perspective, Blovin stressed that long-term investors should keep buying assets to take advantage of the lower prices.

“The only change to your portfolio should be to confirm its diversified and you can weather the storm in good times or bad,” Bolvin said. “Don’t panic. The headlines — and the market — change quickly.”

As for specific investment considerations, stocks are often more volatile during a recession. If you’re looking to shield your portfolio from big swings in equities, this could be a good time to increase your holdings of things like ultra-safe US Treasury bills, Lisa Featherngill, national director of wealth planning at Comerica Wealth Management, said.

Importantly, if you’re invested for a long-term goal, such as retirement, don’t panic and sell into a tumbling market. While dips occur, the stock market’s path over the decades has been consistently up and to the right.

Brett Panziera, CFP, associate director of financial planning at EP Wealth Advisors, told BI that it’s crucial to build and maintain a cash reserve that can cover non-discretionary expenses in the event that you lose your job.

This cash reserve prevents having to withdraw from invested assets that might be trading at a lower value due to a market decline. Essentially, without an adequate emergency fund, you risk selling stocks at low prices to make ends meet.

“Even outside of a recession, you should aim to have an amount of cash on hand to fund at least 6 months of your expenses, or if you are retired and don’t have employment income to support your spending, perhaps up to 2 or 3 years,” Panziera told BI.

“Your investments need time to recover when the market is down and this can potentially take years to happen.

Understanding your monthly spending is critical. According to Panziera, it’s also key to knowing where you can cut back if you lose your job.

Separating your budget items into a “needs” and “wants” category can help identify what items might need to be on the chopping block during a loss of income.

“Knowing exactly what you need each month can also help to determine the optimal amount of cash to keep readily available versus what you can comfortably deploy in long-term investments that might earn a greater return,” Panziera said.

“Closely examining your budget may not be the most enjoyable task, but it is an important one.”

Martha Callahan, CPA, CFP, portfolio manager at FBB Capital Partners, told BI that it’s important to keep investing in your career during periods of economic stress.

Learning and refining new skills tied to your career can help protect you against inflation and make you more marketable when searching for employment.

“Your skillset can be one of your best defenses against inflation. Wages tend to rise over time, and the more your skillset is in demand, the greater chance you have of growing your income and outpacing inflation,” Callahan said. “Becoming an expert in your field can also make you one of the last to get laid off.”

If you are worried about an economic slowdown, Callahan recommends you prioritize paying down debt, as it can quickly grow if you miss payments due to lost income.

“Especially in today’s interest rate environment, where average credit card interest is around 20%, credit card debt will quickly balloon and can be hard to recover from,” Callahan said. “Paying down debt will boost your financial stability.”

Featherngill, the wealth planner from Comerica, recommends paying down debts with the highest interest rate first.

“As an investment, repaying debt is like earning a rate of return equal to the interest rate on the debt,” she told BI. “For example, if you have a credit card that is charging 18%, repaying that credit card debt is the equivalent of earning an 18% rate of return.”

Read the original article on Business Insider

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2025-03-09 16:01:01