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As the US economy contracts for the second quarter in a row, a definition of recession, many Americans are unprepared for an economic downturn.
However, financial advisors say there are many things that are within your control.
Fewer than half of Americans feel ‘financially secure enough’ for another recession, says a survey from the digital asset manager Personal Capital.
Among respondents, the top fears included an inability to plan for the future, trouble paying bills or losing a job, found the report, which surveyed roughly 1,000 cross-generational Americans in May 2022.
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However, the average emergency savings is about $7,600, according to the survey, which may be less than needed. While advisors typically recommend three to six months of living expenses, other experts may suggest more for more flexibility.
What advisors tell their clients
If you haven’t evolved and don’t have an established skill in demand, no matter what happens in the economy, you could be in your own personal recession.
Charles Sachs
Chief Investment Officer of Kaufman Rossin Wealth
Since no one can predict when a recession might happen, it’s best to focus on what’s within your control, such as how much you spend and save, he said.
“If we look at your personal balance sheet and, like many people, you’re living beyond your means, that may not be sustainable,” Sachs said.
And recession or not, job loss can happen at any time.
“If you haven’t evolved and you don’t have an established skill in demand, regardless of what happens in the economy, you could be in your own personal recession,” Sachs added.
How to manage stock market volatility
Growing recession worries have only worsened as investors grapple with rising inflation, rising interest rates and continued stock market volatility, experts say.
“People are being very defensive in the short term, regardless of what their long-term goals are,” said Bill Parrott, CFP, president and CEO of Parrott Wealth Management in Austin, Texas.
While some have lingering fears from the 2008 financial crisis, money based on emotion moves, such as impulsively selling assets, they can lose future earnings and put their plan at risk, he said.
In fact, the market’s 10 best days over the past 20 years followed some of its worst, including during the 2008 recession, a recent analysis by JP Morgan found.
When Parrott’s firm receives a panic call, it reviews the client’s financial plan to review how stock market volatility may affect their goals.
“I know every adviser probably says ‘stay in the market,’ but we back it up with their financial plan and show them the data,” he added.
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