How to Prepare for an Economic Recession

We’re living in an era of economic uncertainty. We may see many years, or even decades of further growth and prosperity, but we may also be on the verge of entering an economic recession. Experts are divided on this question, and economics are always uncertain. But if you want to maximize your chances of flourishing, even in the midst of a harsh economic environment, you need to be prepared for the possibility of a recession. 

So if you believe an economic recession is on the horizon, what steps should you be taking now? 

Change Your Investment Strategy

One of your first steps is to change your investment strategy. In an economic recession, the domestic stock market usually takes a major hit. Your best defense against this is to diversify your holdings across a number of different assets, including: 

  • Foreign investments. If you’re concerned about a recession in the United States, one of your best options is to invest in other countries. You could choose to invest in strong international companies based in other countries or you could invest in foreign currencies directly using forex markets. Even if a recession isn’t in the future, this can be a great way to round out your portfolio. 
  • Stable companies. Even during periods of economic turmoil, not all companies suffer equally. Highly valued growth companies and those in luxury markets often take a big hit, but companies that are always necessary – even during a recession – continue to thrive. Hedging your portfolio with companies involved in utilities and waste management, for example, could be a smart move to guard against a potential dip. 
  • Real estate. The real estate market can have its own recessions and crashes, but it’s often resilient to the ebb and flow of stock market prices. Investing in real estate could be a great way to protect yourself against a forthcoming crash. And if you buy rental property, this could also serve as a stream of secondary income. 
  • Bonds. Though they’ve fallen out of fashion due to offering near all-time lows, bonds are still known for their long-term stability. If you want to invest in something reliable, even if the returns are low, bonds could be the answer. 
  • Precious metals. Precious metals like gold and silver often do well in the midst of recession. However, there are also risks associated with investing in them. 

Prepare for a Changing Job Market

You may also want to prepare for the possibility of a changing job market. During periods of economic recession, many people are in a position to lose their job (or have their hours cut). If you’re not prepared for this, it could have devastating long-term implications for your financial health. 

Instead, be proactive: 

  • Determine your level of vulnerability. Take a moment and determine how vulnerable you are, based on your industry and your seniority within this organization. Will you be one of the first people cut? Or are you unlikely to be impacted by a recession? 
  • Flesh out your professional network. These days, as much as 85 percent of all jobs are filled via networking. If you lose your job, but you have a robust network, you should be in a position to find a new job in relatively short order. Take the time to flesh out your professional network before you need to tap it. 
  • Invest in new skills. You can also invest in new skills, preparing for an alternative career path if your main career path fails in any way. Look for skills in fields that have high resilience to economic turmoil and instability. 
  • Pick up side gigs. While you’re at it, consider picking up a side gig or two. These extra jobs will help you earn extra income, which you can put toward your evolving investment strategy. And if you lose your full-time job, you’ll still have at least some money coming in. 

Establish an Emergency Fund

It’s also a good idea to set aside some money that’s available to you in liquid form, just in case you need it. If you lose your job and your investments go south, you don’t want to have to scramble to make ends meet. For most people, an emergency fund that can cover at least a few months’ worth of expenses is plenty. 

The Cautious Approach

The wisest investors don’t try to place a bet on how the economy will perform; they don’t go all-in on one strategy based on the idea that the market will keep thriving for decades or the idea that we’re about to enter a period of economic hardship. Instead, they keep their strategy adaptable and they hedge their bets. Whatever you believe is in store for our economic future, try to maintain a healthy, realistic, and balanced approach.