The stock market is taking investors on a thrilling journey of terrifying declines with inflation hitting a 40-year high, interest rates continuing to rise, gasoline prices exceeding $5 a gallon, and cryptocurrencies plummeting, indicating a recession or a high probability of an inevitable recession.
Given the severe impact of the Great Recession of 2008, staying calm or just waiting may not be enough this time to deal with your anxiety about your financial well-being.
What you should definitely avoid is taking steps based on fears of a recession that will make you worse off financially.
And writer Michelle Singletari stated, in this report published by the American newspaper "Washingtonpost", that recessions do not last forever, but last an average of 11 months, while the shortest recession ever - the recession of 2020 caused by the pandemic - 3 months only.
Here are 7 tips to protect yourself whether there is a possible recession or not.
Don't be afraid of the bear market
This week, the S&P 500 slipped into a bear market, which is down 20% from its last high.
Since 1950, the average bear market has been around 418 days, according to Anthony Saglimpin, global markets analyst at Amirprize Financial.
Saglimpin suggested that this market could be tapped into by focusing on companies with strong budgets and cash flow and products that consumers use and need.
“Healthcare and consumer goods companies often do well in recessionary environments because people need their products no matter what the economic environment," says Kristen Benz, director of personal finance at Morningstar.
A bear market may be a good time to take advantage of the "dollar averaging" strategy, that is, to invest the same amount of money regularly regardless of the ups and downs the market is experiencing.
Although stocks are volatile at the moment, they are recovering well over time after the recession has passed.
Don't try to catch the right time for stocks to drop
Many people may try to dodge the trade i.e. they are thinking of getting out of the stock market or reducing their investment until things improve, but it is impossible to know the best time to get out of this market and back in it.
Once the low point in a bear market is hit, Saglimpin noted, stock returns for the S&P 500 tend to be above average.
"We are training investors and advisors, who find themselves in the midst of a recession or a bear market, to avoid any major allocation adjustments until the situation calms. The worst thing an investor can do now is try to time the withdrawal from the market."
Get rid of your credit card debt immediately
“The first step for anyone with a credit card is to pay off their balances as quickly as possible, because a recession is causing interest rates to go up quickly,” said Matt Schulze, senior credit analyst at Landing Tree.
The writer pointed out that one way to deal with debt is to take out a low-interest personal loan or sign up for a credit card for a balance transfer.
You can get out of debt faster if you convert high-interest debt into a zero-interest credit card, but this card may not be available to everyone.
Saving when you have plenty
The writer advises saving when you have extra cash because a recession can quickly change your circumstances.
And if you don't have a good emergency fund, avoid extra expenses or unnecessary projects.
Also remember that storing the equivalent of 3 to 6 months of living expenses may not be enough at a later stage.
With the flexibility of their lifestyle, younger workers may be able to find a roommate or two or switch jobs to take advantage of new job opportunities, which should help them amass enough contingency reserves for 3 to 6 months.
If you are older and cannot change your residence status or job or both, you should accumulate enough savings for a year or acquire assets that you can easily convert into cash.
Create an emergency fund backup
In addition to having a fund for tough recessions, Benz recommends finding another source of extra cash in case you need it when necessary.
Benz stated that a home equity line of credit may be the best source of additional funds in this case.
Don't underestimate the power of owning bonds in a retirement portfolio
When the value of stocks goes down, bonds usually offset your own stock holdings, but bond prices have also taken a hit during this period.
However, Benz noted that bonds have held up better than almost any other sector of the market during previous recessions.
Therefore, these bonds should not be abandoned even if they are not performing well.
Looking for additional work
The writer pointed out that there are a record number of job vacancies, while the unemployment rate has reached 3.6%.
According to the US Department of Labor, the economy saw job gains in transportation, warehousing, entertainment, hospitality, education, health services, and government jobs.
Even if you don't need the money at the moment, it may be a good time to look for a second job or additional work in the temporary job economy to increase your income and savings.