What comes up must come down.   Whether it's hype or fact, a lot of experts predict a downturn in the stock market. The ripple effects of the stock market depend on the cause and severity of the decline. Were too many companies overvalued only to come crashing down like a house of cards? Or, did the Fed hit the bullseye by adjusting rates to the level that helps prices slow down without grinding the economy to a halt? The truth is that no one knows if or when the bear market will arrive, which is why it's a good idea to "hope for the best, and prepare for the worst."   

6 Ways to Recession-Proof Your Life

The 2008-09 recession was a difficult time for many, and the stock market has seen wild swings in recent years. Some to believe that a sustained period of decline and even a recession may be on the horizon. Financial observers suggest that a recession will happen sooner or later due to normal economic cycles, with late 2023 or early 2024 being the best guess. In order to prepare for an upcoming recession, it is important to take proactive steps now. 

1. Remain Calm

When the stock market is declining, it can be easy to panic and make emotional decisions. However, financial advisors advise against this and instead suggest remaining calm. The stock market is not the economy; while it may be declining, economic expansion has been seen in the past 45 years. Selling stocks now will lock in losses and miss out on potential gains when the market recovers.

It is important to remember that a decline in the stock market does not necessarily mean that an economic recession is imminent. Instead of selling stocks during a downturn, investors should focus on diversifying their portfolio and making sure they have enough cash reserves to cover any short-term needs. Additionally, investors should consider taking advantage of tax-loss harvesting opportunities if available. By remaining calm and making smart decisions during a downturn, investors can protect their portfolios from further losses and position themselves for long-term success. These discreet action items can help you prepare for the uncertainty. 

2. Have an Emergency Fund

What's an emergency fund? It’s a reserve of ready cash that can be used in times of trouble, such as job loss or unexpected expenses. An emergency savings fund should be kept in a high-interest, FDIC-insured account so that it retains its full value and can be easily accessed when needed – plus a little secure growth for doing nothing never hurt anyone. This will help to reduce dependence on borrowing and provide peace of mind when the going gets tough.

In the current economic climate, it’s especially important to have an emergency fund in place. A recession is highly likely in 2023, and having reserves ready will help to prepare for any potential financial hardship. To ensure the emergency fund remains intact, it is important to keep discretionary spending tight and only use the funds for necessary expenses. Look for an account that lets you create savings plans that are separate from your main account that you typically withdraw from (e.g., debit transactions, card payments, etc). With careful budgeting and planning, an emergency fund can provide a much-needed safety net during uncertain times.

3. Revisit Your Budget

It is important to revisit your budget in order to stay on top of inflation and make sure you’re spending your money wisely. Start by taking a look at bank accounts and credit card statements to identify costs that can be cut. Apps such as Truebill can automate the process of scanning accounts and canceling services, making it easier to keep track of expenses. Additionally, creating a meal plan can help reduce food costs and looking for markdowns and specials can also save money.

Bundling insurance together is another great way to save money. Shopping around for home insurance can potentially save 5% to 20% on costs, so it’s worth taking the time to compare different policies. Taking these steps will help ensure that you are getting the most out of your budget while still being able to afford the things you need.

4. Keep Your Credit Score High

Having a high credit score is essential for financial success. It can help you get approved for loans, mortgages, and other forms of credit. To keep your credit score high, there are several steps you can take.

First, make sure to pay all your bills on time. Late payments can have a negative impact on your credit score. Additionally, it’s important to keep your oldest credit cards open as long as possible. This will help maintain a longer average age of accounts which is beneficial for your score.

It’s also important to keep your debt-to-available-credit ratio low. This means that you should not use too much of your available credit limit on any one card or across all cards combined. Finally, it’s important to maintain communication with creditors if you are having difficulty making payments or need assistance with an account in order to keep them in good standing and avoid hurting your score.

Many banks offer free credit insight tools that give you visibility into your score, credit worthiness and credit ratio. Knowledge is power, so make sure that you know where you stand with these key numbers. By following these tips, you can ensure that your credit

5. Reevaluate Your Job Situation

In today’s economy, it is more important than ever to reevaluate your job situation. Unemployment is a key indicator of a recession and it is essential to make yourself more marketable to employers. One way to do this is by brushing up on employment skills such as communication, problem solving, and teamwork. Networking with others in your industry can also help you stay informed of any job openings or opportunities that may arise.

Furthering your education is another great way to open up job opportunities. However, there are also low-cost options available such as online courses or seminars that can help you gain new skills and knowledge without breaking the bank. Additionally, many employers offer tuition reimbursement programs for employees who want to continue their education while working full-time. Taking advantage of these resources can be a great way to increase your chances of finding a better job in today’s competitive market.

6. Be Real About Risk Tolerance

When it comes to investing, risk tolerance is an important factor to consider. It is essential that individuals tailor their investment allocations to their own risk tolerance in order to ensure financial security. Overestimating one’s risk tolerance can lead to making decisions that are not in the best interest of the investor. For example, selling stocks while the market is down will set paper losses in stone and prevent investors from seeing intended returns.

On the other hand, when market conditions improve, investors should consider adjusting their asset allocation by trading some of their stocks for bonds or less volatile blue-chip stocks. Additionally, investing extra cash into temporarily low-priced stocks with long-term value may be profitable. Asset allocation suggestions are meant for people who can remain invested through market fluctuations and have a realistic understanding of their risk tolerance. By being aware of one’s own risk tolerance and making smart investment decisions accordingly, investors can increase their chances of achieving financial success.

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HM Bradley, Inc. (HMBradley) is a financial technology company, not a bank. The information above is for informational purposes only and is not legal, financial, or tax advice, and it may not be suitable for your individual needs; speak to a licensed financial advisor who can help you tailor a plan for your specific needs.