No one will shut up about bear markets and recessions.

There is a lot of talk about the impending recession we are “destined to have”. According to some, we have been destined to have this recession since 2020. Some will argue that we did hit the technical definition of a recession with two-quarters of negative GDP growth during the summer of 2022. Many wrote this off given the number of people who kept their jobs. Then people were mad that we “changed” the definition of a recession.

That was a lot. A lot of jargon and a bunch of stuff that is behind us at this point. Either way, no matter how the economy is functioning, how many stocks continue to add billions in market cap, and how many jobs we continue to add each month, everyone wants to talk about a recession and a bear market that will crush everyone’s retirement accounts. (NOTE: I am not in this boat. I do not think that this is the path, but I am aware of the potential for a recession and bear market. These are normal events that happen throughout every economic cycle).

Anyway, let’s get to it. How do we prepare for something like a recession? (No, we will not be buying credit default swaps on mortgage bonds, sorry to my Big Short fans out there).

First off, getting word of layoffs at your company can be a good time to step back and look at your financial standing. It is actually pretty simple We come back to our bread and butter, our cash reserve. Here’s what I would ask myself:

1. Am I holding at least 3 months’ worth of cash?

2. If there are current layoffs at the company, would a little more cash make me sleep better at night?

3. Where can I cut back in order to bring my cash reserve up?

If we want to bulk up our cash reserves in a time of need or in preparation for tough times, we must look at rotating our savings. If we are contributing $250 per month to our 401(k), it may be time to turn that off for a couple of months to direct those funds to our cash reserve.

I know this may seem counterintuitive, but if you are going to need cash, a retirement account is one of the worst places to have to take it from. In a time of need, we want to do everything possible to leave our investments be. Taking from retirement accounts is essentially forced selling, which is not something anyone should be interested in.

Now, on the bear market side of things. In the best-case scenario, you retain employment and get to BTFD. Yes, buy the freaking dip. As young investors, a bear market can be literal jet fuel to compounding your retirement savings. Not what is already set aside and invested, but your current contributions.

When the market slides, as a young investor specifically, this is usually when people get scared. The saying goes, “The stock market is the only store people sprint out of when everything is 30% off.” This is very real; however, it is usually the best time to be investing with a long-term mindset.

A bear market and a recession are incredibly scary. I will tell you flat out that they WILL happen during your lifetime. How you handle them is up to you. Putting yourself in a position to weather the storm will bring so much peace of mind to your financial situation. I love to encourage people to focus on what they CAN control, not what they cannot.

I have seen countless people in the financial world call for a collapse. It is incredibly frustrating to see this, especially given the amount of traction they gain from their posts. It is getting harder for people to tune out, but it is incredibly important that we do not let these irrational calls scare us out of investing over a 30-40-year time horizon.

There are multiple ways to prepare yourself that can alleviate the stress of the unknown. Being prepared goes an incredibly long way when it comes to peace of mind. Having cash on hand can bridge you from one job to another and subscribing to a long-term mindset even throughout bear markets will be worth its weight in gold after a few decades.

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Have a more specific question or want to get your finances in order? Feel free to reach out to [email protected] for a free consultation!