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Navigating Economic Recessions: Impact, Strategies, and Investment Insights Thumbnail

Navigating Economic Recessions: Impact, Strategies, and Investment Insights

There’s been a lot of talk lately about an economic recession, let's break it down. Technically speaking, a recession is a significant and prolonged economic decline, generally defined as two consecutive quarters of negative economic growth. When a recession occurs, you’ll likely feel its impact on your finances – there will be fewer jobs, lower wages and more businesses tend to close.

What’s the Impact of a Recession?

Many people fear recessions, given the expected economic weakness and instability. If economic growth slows and debt piles up, businesses may pause expansion plans, or lay off a portion of their workforce. High unemployment slows spending as many individuals and families manage their finances more cautiously. We try to make our money stretch by cutting expenses down to the essentials. The lower spending from consumers further squeezes businesses. This feedback loop between businesses and consumers is what causes the economy to experience recessions.

While the economy typically expands over time, recessions are a normal part of the economic cycle. According to the U.S. National Bureau of Economic Research, the average recession since World War II has only lasted about 10 months ( silver lining), but that doesn't mean it's not an incredibly challenging time to navigate for many consumers,  businesses and investors.

How to Ease the Burden

Keeping a close eye on debt is of utmost importance in recessionary times. If interest rates are high (and rising), you could face larger payments on outstanding credit card balances, mortgages, loans and other debts. Try to reduce the amount you owe and watch your spending to avoid incurring excessive interest charges. Remember consumer debt typically carries the highest interest. This should be the debt you focus on reducing first.

Entertaining friends and cooking at home, walking or biking instead of driving, and cutting back on costly entertainment are some ways to lower your bills. In addition to paying down debt, think about an emergency savings fund. You never know when a large, unexpected expense may arise and during recessionary times when money is tight and rates are high the last place you want to be parking a large unexpected bill is on your visa or line of credit. 

Investing in Recessionary Times

Since the economy slows in a recession, stock markets often come down, reflecting the bleak outlook for business growth. It’s tempting to sell during a severe market downturn, but that’s usually the wrong strategy - but we already know this right? We have worked with you to build a customized long-term plan that meets your financial objectives, while taking the normal market cycles into account. When putting together your portfolios the business cycles are taken into account when determining your appetite for risk. Reacting rashly to short-term market declines may keep you from reaching your goals by locking in your losses and eroding your wealth!

Remember that recessions come and go, while the overall market’s long-term trend is upwards. With help from us, you can stay focused on your financial goals and look past short-term market challenges. Depending on your circumstances, risk tolerance and time horizon, recessions can often be an opportunity! Investing more during a market downturn when prices are lower, will leave you better positioned to benefit when the economy rebounds. We can help guide you through the economic cycle, giving you peace of mind during recessionary periods.