Preparing for Recession
Proverbs 6 tells us that we must be prepared for whatever lies ahead. Today on MoneyWise, we’ll talk about what that means for your investments should we enter a recession. First off, we must always put our trust in the Lord to provide for our needs. Joshua 1: 9 is a powerful reminder of that. It reads, Have I not commanded you? Be strong and courageous. Do not' be frightened, and do not' be dismayed, for the Lord your God is with you wherever you go. That said, we must also do our part, preparing as the ant does for possible hard times ahead. And there are increasing indicators that the economy may be heading into a recession. ECONOMISTS SAY RECESSION COULD BE LOOMING But plenty of economists are now predicting that the U. S. will enter a recession this year for several reasons: the war in Ukraine, interest rate hikes, decreasing economic growth and skyrocketing inflation. So what does that mean for your retirement portfolio? Investment advisors are weighing in with their advice and it’s interesting to note that much of it is what we say here everyday. For starters, think beyond the next recession, whenever it may come. Have a long term investment plan and stick with it. Recessions are always temporary. Market downturns are always temporary. Trying to predict or time the market is difficult for the smartest brains on Wall Street. Consider all the managed funds that do no better than index funds and sometimes much worse. YOU LONG RANGE PLAN Now, what should your long range investment plan look like? First, it should be based on your time horizon. When is your best estimate for retiring? Ideally, you want that date to be at least 10 years out. Here, a target date fund can be a big help. These are mutual funds or exchange-trade funds (ETFs) that rebalance your portfolio periodically, shifting to more conservative investments as you near your retirement date. Robo-advisors do much the same thing. They’re digital platforms that use algorithms to manage your investments without human supervision. Another key part of your long term investment plan should be dollar-cost averaging. That simply means you contribute a set amount to your retirement account every pay period, no matter what. That means when the market’s up and shares are expensive, you buy fewer of them. When the market’s down and shares are cheap, you buy more of them. Then, when the market recovers, those additional shares you bought will increase in value right along with it. But if you sell during a recession, you lose out and lock in your losses. SAFE-HAVEN INVESTMENTS If you feel you must tweak your portfolio, the time to do it is before a recession hits, not after. In that case you might look at what are called safe-haven investments. These would include some cash and short-maturity bonds, and right now, we’d recommend I-bonds. They’re adjusted every six months for inflation, and currently are yielding near 10-percent. You can’t redeem them for one year, and if you cash them in before five years, you’ll lose a few months’ interest. But in this current inflationary period, they’re tough to beat. Gold would be another safe-haven investment and a hedge against inflation. In theory, it moves opposite of the market, but not always. For that reason, gold should be a very small part of your portfolio, no more than five or 10%. DIVERSIFY! If you’re not using a robo-advisor or a target date fund, you have to decide what the other 90-percent of your portfolio will be. Here we look to Ecclesiastes 11: 2, Give a portion to seven, or even to eight, for you know not what disaster may happen on earth. Your portfolio should be well-diversified to weather a recession without serious losses. Assets would include some index funds, safe fixed income securities like the I bonds I mentioned, and even real estate or real estate investment trusts. taking these steps should get you through the next recession, whenever it comes, with peace of mind. On today’s program, Rob also answers listener questions: ●Is it wise and appropriate for a church to take liquid funds out of savings and invest the money in the market to seek a better return? ●Should you take out small life insurance policies on adult children? ●What is the best way to get started with investing? ●Would it be wise to pull money out of retirement savings to pay for private rehab treatment for an adult child?