Preparing for a Recession with Joy and Bridget

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Preparing for a Recession with Joy and Bridget

On this episode of Financially Naked: Stories from The Financial Gym, our host is Joy Liu, Level 2 Trainer. She is joined by Bridget Todd, Head of Trainer Development, to discuss the recession and what we should do.

Podcast Notes

  • Unlike the recession in 2008, it isn’t so much an economic reason, it’s because of the uncertainty around the coronavirus pandemic. The fundamental issues with real estate and banking are what caused the last recession.

  • For the most part, a recession means a 20 percent drop from the top of the market. Right now, the market is down about 30 percent, so we are in a bear market. This is the first time many people have experienced it and it is scary. 

  • It is unknown how long the downturn will last, however, on average, most bear markets/recessions last about 14 months and take another 12 to 18 months to reach a full recovery. We have about another year to two years to get back on the upside.

  • If you get laid off, or have a reduction in hours, the first thing to do is look at your lifestyle and cut out things that are non-essential. Think about the things you can do to keep enough cash in the bank as possible. 

  • In a perfect world, everyone would have an emergency fund that would last them three to six months, but most people do not have one. You need to figure out where to spend less and how to make the money you do have last longer.

  • Take a pause on your long-term goals and debt repayment and find out what you absolutely need to spend. You may need to only pay the minimum. Apply for a balance transfer, if you have credit card debt, or apply for a zero percent interest credit card and pay it off within 12 months. Have as much of your debt moved or incurred at zero percent, if you don’t have a cash savings.

  • Many financial institutions are saying they are going to help people out. If you need to prioritize paying your credit card or paying for food, it may be time to call the credit card company and see if there is any wiggle room. The worst they can say is no. 

  • If you have federal student loans, you can call and put them into forbearance, and that will buy you some time and some room in your budget. No one knows what the outcome will be, so call your mortgage lender if you cannot make your payment. 

  • For those able to keep working and earning the same paycheck, continue what you are doing with investing. Everything is 30 percent off right now. 

  • If you have an emergency fund and debt that is paid off, now is a great time to start investing. Only invest with money you don’t need in the next five to ten years. This may not be the lowest point or it may bounce back tomorrow. In 2008, the market went down by 50 percent. Ten years from now, this will be a blip. 

  • Financial Trainers at The Gym encourage building an emergency fund while also focusing on debt repayment so you stay out of debt. If you lose your job, you will need cash savings.

  • The Gym thinks of your money in three pots: your cash emergency fund, your retirement fund, and your life money. 

  • For a goal that will happen within one to four years, it is recommended to be invested conservatively at approximately 50 percent stocks and 50 percent bonds. The middle term, five to nine years, is recommended approximately 75 percent stocks and 25 percent bonds. Anything ten or more years away is recommended at 90 percent stocks and 10 percent bonds. The average stock market return is eight percent annually and bonds return about three percent annually.

  • Having the right asset allocation, and having a mix across your account, is key to helping you take advantage of these not great times and it will benefit you in the future.

  • If you lose your job, you may need to take a job that isn’t “the one” but it is a means to an end. It is tough to be picky, because jobs are more scarce in a recession. Sometimes you need to settle for a job you don’t love, but it may help you get the job you do love later. When the economy starts booming again, there will be a plethora of jobs.

  • For new graduates or millennials that lose their jobs, moving back in with your parents isn’t the worst thing. It is a great way to help you stay out of debt.

  • Think about ways to recession-proof your job skills. Can you consult with that skill? Do you do something that is marketable in a recession? Talk to your Financial Trainer about your career plan moving forward. 

  • No job is 100 percent safe, but you should do whatever you can to be the most valuable member of your team. Work hard, bring what you can to the table, and hope for the best.

  • There are a lot of ways to make money from a side hustle or part-time work, if you lose your job.

  • Losses that you see in your investment portfolio are unrealized losses. The only time they become real is when you sell. 

  • Ten years from now your investments will be worth much more than today. It is hard to watch your money go down, but this is temporary and you don’t need the money right now.

  • If you want to roll your old 401(k) to a new account, talk to your trainer first, because if the market comes back while the check is in the mail, you will miss the recovery. This may not be the best time to do a rollover.

  • Stick to your plan, talk to your trainer, and don’t panic. 

The Financial Gym Team