It's reasonable to wonder how to prepare for the next recession now that the coronavirus pandemic has created unforeseen disturbances...
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t's reasonable to wonder how to prepare for the next recession now that the coronavirus pandemic has created unforeseen disturbances and prompted the first bear market seen in the last 11 years.
A recession may be defined as at least 2 back-to-back quarters of falling GDP that happen after a period of growth. A recession is classified by the National Bureau of Economic Research (NBER) as "a considerable drop in economic activity throughout the economy, spanning more than a few months, generally apparent in real GDP, real income, employment, industrial output, and wholesale-retail sales."
Now that we are clear on that, here's how to make sure you're ready when what we have just explained arrives!
Diversify Your Investment Portfolio
When you hear the term "recession," you may believe that you should sell your investments and stop investing. But hang on, take a deep breath, and don't act in terror. We've said it before and we'll say it again: trading is a roller-coaster ride, and you don't want to get off while it's still running!
Sure, diversify your assets and avoid putting all your eggs in one basket, but markets fluctuate often. Even if your investments have lost money, you will only suffer the loss if you withdraw the funds. So, don't take out your cash right now. Keep your assets in place and wait for the market to recover. Stocks are now on a massive clearance discount. If you keep investing, you'll be able to acquire stocks at very cheap costs. And when the market recovers (which it will), you'll still be riding the rollercoaster ride, beaming when you see the enormous profits from your "sale" stocks pour in.
Pay Off High-Interest Debt Accounts First
Use mobile applications to keep track of every debt account you have to see how much you owe and your varied interest rates. Concentrate on paying off the debts with the highest interest rates using most of your income. Consider paying down tax-deductible debt accounts, such as student loans, while you're at it, so you may receive money back during tax season.
Stop Adding Pennies to Your Emergency Fund
Boost your savings plan as much as possible after eliminating superfluous costs. Savings should account for 20% of your earnings, while "additional" costs such as subscriptions and memberships should account for only 30%. Set up greater automated contributions to your emergency fund once you've reduced your additional costs. If you lose your work or have automobile problems, your emergency money will keep you afloat.
Build Liquid Assets
This does not imply that you should sell your assets to raise funds. Keep your new investments in cash and cash equivalents rather than stocks and bonds.
When the bull market starts, you'll have cash on hand to purchase stocks and mutual funds at much-reduced prices.
There's one more thing to consider: cash is the only completely secure investment when the stock markets go haywire. You'll be developing a really secure area of your financial portfolio by increasing your cash reserves.
Create Multiple Sources of Income
For good reason, the typical billionaire has seven streams of income. Having various sources of income guarantees that you have more money flowing in. It also serves as a safety net in the event that you lose a source of income.
Is there anything you're very enthusiastic about? Is there anything you do that you are always praised for? Consider turning it into a second business to supplement your income. You might also explore a number of recession-proof enterprises.
Continue to Put Money Down for Retirement
During the 2008 crisis, if you had a 401(k) or other retirement plans, you may recall your balance dropping even though you continued to contribute money with each paycheck. "Even if your bottom line is falling, you're purchasing more shares with every dollar," Sweis said, which might be troubling. Investing is like purchasing at a bargain-basement price when equities are down.
Overall, predicting when the next recession will strike is next to impossible. However, knowing how to be prepared for when and if the recession does happen is beneficial. Even if (unlikely) the moment never comes, you'll have gained enough financial acumen to be comfortable for the rest of your life in terms of your financial domain.
