How To Protect Yourself Against a Recession
US Treasury Secretary Henry Paulson has admitted yesterday that the US economy is facing a “sharp decline” at the moment but hoped for a recovery later in the year. While Mr. Paulson avoided using the word “recession”, polls show that economists, as well as the public, feel that a recession is looming.
How can you prepare for a recession?
Protect your portfolio
You don’t necessarily need to make any changes to your investment portfolio. I don’t plan on changing my investment mix: our portfolio is quite conservative as it is. We have an emergency fund, a good mix of stocks and bonds, and reasonable exposure to foreign stocks. So I pretty much plan to stick with my convictions and wait out the recession.
However, if you feel you might be too exposed to a slowing stock market, here are a few things you can do. Ideally, you should have started working on some of them several months ago, but it’s never too late to start preparing.
1. Cut your expenses. Create a realistic budget and stick to it.
2. Create an emergency fund. Try to keep between three and six months’ worth of living expenses in short-term investments. This is especially important during an economy slowdown, because people do lose their jobs more often during a recession.
3. Don’t pull out of the stock market entirely, because you do want to benefit from the eventual upturn, but consider switching some of your stock holdings into municipal bonds or treasuries.
4. Allocate part of your investments into global ETFs and mutual funds. The standard formula calls for 15%, but we choose to be more aggressive and keep around 25% of our stock portfolio in foreign stock. We’ve been very happy with DODFX (no load, expense ration 0.66%). In addition, we have some exposure to emerging markets, China, Japan and Europe.
5. Make sure you don’t have more than a small percentage of your portfolio in any one company. Specifically, many financial advisers recommend that employees invest no more than 10% of their retirement money in their company’s stock.
Protect your job
1. Make sure you are perceived as valuable at work. Ideally, you want to be at the top 10% of your company to avoid the layoffs.
2. Put more effort into networking. If you lose your job, the best way to get a new one quickly is through your network of friends and colleagues. LinkedIn, Facebook and other social networking sites are great for maintaining and expanding your network.
I am not a financial adviser. The information provided here is general in nature. Prior to taking any action, please consult a financial planner regarding your specific situation.
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Acacia responds:
Posted: March 19th, 2008 at 12:48 pm →
How does one create an emergency fund when they live paycheck to paycheck and have credit card debt? You sound like a rich person giving investment advice to other rich persons. Not very helpful.
MomGrind responds:
Posted: March 19th, 2008 at 1:25 pm →
Thank you for your comment. I’m sorry that you didn’t find my article helpful. For your situation, you may want to check out the following resources:
Motley Fool - alternatives to having an emergency fund
Paula Gregorowicz - paying down debt vs. saving
Good luck!
ironman responds:
Posted: March 19th, 2008 at 4:56 pm →
Very timely. Thanks.
@Acacia: all the more reason to listen to her since she’s obviously good with money.
Jill responds:
Posted: March 19th, 2008 at 7:57 pm →
Thanks Vered. Not sure I can pass as valuable at work
but the networking advice is important. I’ve been neglecting that lately.
This Week’s Most Popular Posts - MomGrind responds:
Posted: March 23rd, 2008 at 4:12 am →
[…] How to Protect Yourself Against a Recession One option is to stick with your convictions and wait out the recession. But there are a few important changes you can make. […]
Improve Your Finances With Common Sense @ The Roundup responds:
Posted: March 23rd, 2008 at 9:30 am →
[…] How To Protect Yourself Against Recession @ Mom Grind […]
Vanessa responds:
Posted: March 23rd, 2008 at 2:50 pm →
Tanks for your article. I found it when I goggled ” Beat Inflation”. I am no financial expert, it is just that I am 55 years old and remember the late seventies and the early eighties. When interest rates shot up to nearly 20% and gold to 900.00. Oh yes let us not for get the housing crisis do to creative financing. Now it is creative financing by the banking industry on a larger scale. I saw the same thing going on early last year and became the mother hen to my friends and family telling them to get ready. Beginning last year I started cutting my cost Living on unnecessary expenses. Things I thought I could not live with out. How wrong I was. I called my cellphone carrier and mentioned changing companies and got a unbelievable deal of only paying for minuets used at an receivable rate of .05 cents. Never mind rollover minutes that you pay for and never use or using the phone so much hoping to not waist the money you have already spent. I got rid of all our credit cards and total destroy those daily credit card offers that come in the mail. I have made a total risk to move my investment to Gold because it was the only thing holding true to the pattern of inflation. Interest rates are being keep artificially low when they should be increasing . I locked my 95 year old mothers saving in a year CD at 5.25 just before the rate drop.
Thanks to your website I can try a few more cost cutting ideas. I am looking to ways of evaluating our grocery bill and bring down the cost. Gasoline is another major problem and that I have tackle by combining trips. But at the rate gas is going up I have got to do better.
Thanks again
Vanessa
MomGrind responds:
Posted: March 23rd, 2008 at 4:40 pm →
@ ironman: Thanks for the support.
@ Jill: Sure you can.
@ Vanessa: Sounds like you did really well preparing for a possible recession. It’s great that you were able to save in places where you didn’t think it was possible to save.
If you’re looking to save on groceries, try reading this great post by Alanna Kellogg. Lots of good advice there.
I don’t think I can be of much help with saving on fuel – still need to figure this one out myself – but you may want to check out this article for a few ideas.
5 Strategies to Survive An Economic Slowdown | Moolanomy responds:
Posted: March 25th, 2008 at 6:06 am →
[…] How To Protect Yourself Against a Recession at Mom Grind […]
Michael responds:
Posted: April 16th, 2008 at 2:30 am →
Grow a garden(as much as possible. If possible, have a greenhouse)
Live below your means
Shop less for food, less trips that would waste gas
buy a bike(I need to do)
BUY STORED FOOD AND WATER (www.efoodsdirect.net)
buy some gold/silver coins(www.the-moneychanger.com)
Read, study and live according to God’s Word rightly divided(www.gracealive.org)
Get rid of whatever you don’t need, now is the time(Spring Cleaning)
Use the time you have wisely(easier said than done)
Get enough sleep
Enjoy at least 10min of sunshine when possible
Trust Jesus CHrist as your Lord and Saviour: Christ died for your sins, was buried and rose again the third day. Simply believe this to be true, cause Jesus Christ did this for you.
Without Faith in the God the Creator of the King James Bible: what does anything material do for you if you died in an economic depression?
If you gained the whole world, and lost your soul for the world’s goods and pleasures: what good would that do you?
By the way, in an economic depression: what good is FIAT monopoly money from the federal Reserve going to do for you?
if at all possible: get mad and get going to call the White House and your Congressman to tell them : GET RID OF THE FEDERAL RESERVE: THEY ARE A MAJOR REASON WE IN THIS COUNTRY WILL BE DEVASTATED BY AN ECONOMIC DEPRESSION. WHO DO YOU THINK ALLOWED AMERICANS’ TO GO THROUGH THE FIRST GREAT DEPRESSION? FEDERAL RESERVE HAD A HUGE PART IN IT!
MomGrind responds:
Posted: April 16th, 2008 at 9:51 am →
@ Michael: living below your means is so important but so hard to do. Thank you for your comment!