Monument Wealth Management Articles

Why Recession Proofing Your Finances Is a Game Changer in the Long Run

Nov 29, 2021 Investing & Portfolio Strategies

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So, what exactly is recession proofing anyway? Recession proofing describes the practice of safeguarding your portfolio from the effects of an economic downturn. The path to implementing this practice can look different for every investor. For some, this may mean shifting to a more conservative asset allocation, while others may be forced to rethink their wealth management framework altogether.

As intuitive as this practice may seem, remarkably few people bother to appropriately ‘recession-proof’ their own finances. Unfortunately, failing to prepare for even the possibility of a recession can impact a portfolio for decades.

Bottom line: Recession proofing your finances is a critical component to ensuring long-term wealth stability. Still not convinced? Okay, hear us out.

Because Investments Should be Boring

When troubling times erupt, it’s easy to have a knee jerk reaction. The sensationalized antics of daily news broadcasts can easily lead someone to act impulsively, but it’s more important to start planning in advance so that rather than panicking during tumultuous economic periods, you’ll be able to put your feet up and change the channel.

Easier said than done, right? The daily news media is constantly barraging us with alerts and updates, hijacking our focus, and compelling us to take action—do something, do anything! Unfortunately, “doing something” can be one of the worst choices to make, especially when it comes to short-term news cycles. In reality, the ability to maintain patience, discipline, and restraint is an investing superpower.

This is not to minimize the importance of actions taken by an investor during these periods of explosive growth and decline, however. Decisions made during past recessions (including the swings of 1999-2001 and 2008-2009) have had serious impacts on long-term portfolio performance.

Some of the best investment opportunities emerge in the midst of a recessionary pull back. And, according to investment strategist Tim Hayes, during these moments in a downturn, “the market has mostly priced in the bad news, liquidity has reached excessive levels, and the market has started to focus on the potential stimulus—the improved chances for the economy to recover—and the improved valuations.”

The same applies to corporate investors. A study by Boston Consulting Group found that mergers made during economic downturns generated 15 percent more shareholder value, compared to mergers made during upswings.


Plan To Do Nothing

A wealth plan provides investors with the comfort level to be confident in doing nothing. It ensures they are prepared for cyclical downturns and are properly invested in the midst of a recovery.

Without planning for these moments beforehand, however, even the most level-headed of investors are bound to feel anxious, uncoordinated, and illiquid. They are also more at risk of making knee-jerk decisions that can affect their portfolio’s value long term.

Despite what the noise from the market may tell you, there aren’t any patterns or facts that will help you accurately forecast the future. And while planning out a long-term strategy isn’t a particularly exciting approach, especially when compared to the impulsive actions of day traders and speculators, the reality is that  “boring” should be what you strive for.

Because Time is an Asset

The majority of your lifetime investment returns will be determined by decisions that take place during a minority of the time. Most investors would acknowledge that time is a resource yet it is often misunderstood, at least on the surface level.

Yes, investors should stop wasting time analyzing meaningless noise from the market. That’s obvious. When it comes to investing your time throughout your life, however, this lesson becomes even more important. It cannot be wasted, because it cannot be regained.

Markets recover, but we can never recover our time. As a result, time can become a punishing force, penalizing investors who have less of it to leverage. For example, let’s say you save $2,000 per month starting 30 years before retirement versus saving $2,000 per month starting 20 years before retirement. When you finally reach retirement age, you’d end up with $800k more in the bank by actively saving for those 10 extra years (assuming $0 starting value, a 5% interest rate, and compounding annually).

This underscores the importance of having a long-term wealth plan. Time seems to move quickly in a downturn, and without a plan, you’ll be left scrambling and tempted to respond hastily. By investing early and thoughtfully with a longer timeline, you’ll be able to take comfort in your long-term resilience to fluctuations, allowing you to ignore the turbulence of the market when they inevitably happen.

Because Growing Your Value is the Ultimate Goal

There’s no question about it— we’re experiencing uncertain times, and an even more uncertain market. No matter the economic backdrop, however, our ultimate objective is ensuring our clients can meet their financial goals. This is accomplished by not only the maintenance of portfolio value but also the growth of its value.

Not all growth rates are equivalent, of course. While some may choose to focus on fast (or risky) growth strategies, our advisors prefer a calculated and intentional rate of growth. By adhering to a more careful and disciplined trajectory, we can ensure our clients’ portfolios are always aligned with their lifelong goals.

Personalization Matters

Our approach to wealth planning is completely customized to your specific needs. Because cookie-cutter solutions don’t always taste so sweet for everyone. That’s why our objective is simple; to provide opportunities for people to use what they have to get where they want to go. We want to tap not just our client’s potential for wealth, but their potential for living.

When taking the road to financial freedom, you want an investment advisor who is approachable and who cares about your long-term success, right? In this respect, Monument Wealth Management is unmatched. Our approach to wealth planning is centered on a highly customizable and collaborative process, which we refer to as ‘Private Wealth Design’.

With a partner like Monument Wealth Management, you’ll always remain confident in your long-term plan–providing your future financial stability with more certainty than ever before.

High Earners Eye Retirement

It’s time to find clarity around your finances and remove the anxiety of the unknown.

Read our case study, “High Earners Eye Retirement,” to see how we helped one of our clients with their wealth planning.


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