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 You Want Investments to 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 financial 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.
We like to think of our approach to wealth planning as white-glove boutique – 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.
IMPORTANT DISCLOSURE INFORMATION
Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Monument Capital Management, LLC [“Monument”]), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from Monument.
Please remember that if you are a Monument client, it remains your responsibility to advise Monument, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. Monument is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice. A copy of Monument’s current written disclosure Brochure discussing our advisory services and fees is available for review upon request.
Please Note: Monument does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to Monument’s web site or blog or incorporated herein, and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly.
Please Also Note: IF you are a Monument client, please advise us if you have not been receiving account statements (at least quarterly) from the account custodian.