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- Financial planner Michael Garry started his firm in 2006 and helped clients through the Great Recession.
- With a possible recession on the horizon, she advises sticking to your plan and investing more if possible.
- He also says that recessions can have a silver lining: cleaning up dysfunctional industries.
The news is full of stories about high prices at the supermarket and at the gas station, and the “R” word (recession) is appearing more and more often. For those who lived through the Great Recession from 2007 to 2009, the prospect of another recession is ominous.
Michael Garry founded Yardley Wealth Management in 2006, so he’s been here before. Insider spoke to him about what he learned during the Great Recession and how those lessons apply to today’s investment environment.
Lessons from the last recession
When thinking about the last recession or the current economic slowdown, Garry says, “The most important thing is to keep the long-term perspective that recessions and bear markets are both necessary and temporary.”
When he was balancing accounts and buying stocks in the late 2000s, some people thought he was crazy, but the strategy has worked in the long run because the stock has rallied.
“It’s very understandable that people are anxious” right now, Garry says, noting that “uncertainty breeds fear.”
It suggests that people focus on the big picture, which is that, historically, markets have recovered, and that is likely to be the case today. “Maybe it won’t get better and we’ll be selling pencils on the street,” she says, but she doubts it.
Because recessions can ultimately be a good thing
Garry pointed out that one of the after effects of the Great Recession was the strengthening of the financial sector.
Bad ideas – business ventures that aren’t sustainable – get swept away during a recession. This is terrible news for those who work or invest in those industries and lose their jobs or investments. However, the sweep often leaves the overall economy more solid.
“Banks are in much better shape than they were” during the last recession, he says, noting that they are carrying less debt than they were in the 2000s. “They learn from mistakes and get better.”
5 tips to keep your portfolio healthy today
Garry shared these tips for investing during the current recession, whether it turns into a full-blown recession or not.
Follow your plan
“If you have a plan, stick with your plan,” says Garry. “Don’t change it because of the recession.”
Don’t panic change your investment profile or put your money under a mattress. People who stuck with their investment routines during the Great Recession did very well after it ended, as stocks posted significant gains.
Don’t make bets on the future performance of the industry
What is obvious in hindsight is not easy to predict in advance. Garry advises investing in asset classes such as large or small cap stocks, foreign investments, etc., rather than in one sector. This hedges your bets by spreading your investments across many sectors rather than focusing on one area that could collapse.
If you can invest more, do it
If you can increase your investments right now, “I’d encourage it,” says Garry. “It’s like you’re buying things on sale.”
Putting more into your investments now is the definition of buying low, so it’s a good idea. And, if retirement is a few years away for you, think of this as a bonus and take advantage of the stock drop.
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Avoid getting rich with quick investments
Economic uncertainty can make us susceptible to investments that promise quick returns, but traditional investments remain your best bet.
“When things are a little volatile,” says Garry, “it’s so much easier to believe that someone out there knows what you don’t know.”
It is probably no coincidence that the first cryptocurrency, bitcoin, was born at the end of the last recession, promising to create wealth out of thin air. Crypto doesn’t seem to be doing well at the moment. It could bounce back or it could become one of the sectors that gets wiped out during this recession.
Be flexible with your retirement plans
If you are already retired or about to retire and need to reduce your portfolio, a bear market is a real problem.
Garry says that if you need 2% to 3% of your retirement savings to cover your living expenses, a recession won’t affect you much. However, he does consider changing your retirement plans if you need to withdraw 4% or more.
For example, Garry suggests if you were planning to retire this year and take an expensive trip, push it or anything that requires a large cash outlay back a year or two. If you can postpone your retirement or do some counseling until the market recovers, “It could help your plan a lot,” he says.
A warning and a sign of hope
One of the most significant risks in a recession is also the hardest to predict: unemployment. Garry has worked with clients who were comfortable in their jobs, often with good earnings, who were fired unexpectedly due to downsizing or acquisitions. If this happens to someone in their 50s, it can be difficult to find another job and even more difficult to get a job on the same level as your last job.
A period of unemployment or underemployment near retirement age or being required to retire early can have a significant impact on your retirement. So it’s a good idea to keep your resume current when the economy is choppy.
That’s the bad news, but Garry also had good news. He noted that markets look forward, not backward, and the last 100 years of market data show that stocks start to recover in the middle of a recession, not after it’s over.
For example, if we were to have a recession throughout 2023 and exit it in 2024, the market could be expected to start growing between April and August of 2023. Garry noted that we could already see this effect, as October and November was a better month for the stock market, which could indicate that we are in the middle of the current recession.
One final tip: “It’s always a good time to talk to your counselor,” says Garry. If something changes in your situation, make sure your investment plan continues.