Worried About a Potential Market Downturn? Four Tips for Safeguarding Your Assets

by Brian Pirri | Feb 4, 2020

The U.S. bull market celebrated its 10-year anniversary in 2019, becoming the longest bull market on record and putting some investors on edge. History tells us that for every seven to eight years that the market experiences a bull run, there is a higher chance that we will see 11-14 months of a bear market or even a recession. While a recession doesn’t seem to be imminent, there are certainly factors, adding an element of uncertainty to the market, from the Presidential elections and trade tensions to the coronavirus outbreak.

Maintaining smart financial practices will serve you well no matter the state of the economy and financial markets. Consider the following strategies to have in place to protect your assets in the case of a down market or full-blown recession.

Establish an Emergency Fund

First and foremost, you need to make sure you have an adequate emergency fund that will cover three to six months of expenses. An emergency fund will help you build a solid foundation and protect you when faced with unexpected financial setbacks. For example, in case of a sudden job loss, having cash available can prevent you from tapping into retirement accounts or going into credit card debt in order to cover day-to-day expenses.

Build a Budget

Regardless of the state of the financial markets, we recommend building a budget and looking for areas where you can cut back on expenses. From a cash flow standpoint, try paying down credit card debt or refinancing mortgages while we are in a low-interest rate environment. Additionally, we suggest putting any large purchases such as a home or car purchase on hold to save your cash during a recession or down market.

Make Adjustments to Your Portfolio

While we prioritize sticking to your long-term financial plan, it may be necessary to make some tweaks to your portfolio in the case of a recession. This could possibly be a shift in allocation out of high growth stocks into more defensive or value-oriented stocks.

It’s also important to note that these adjustments will look different depending on your age. For retirees, we advise our clients to stick to their overall retirement plan, but to be more conservative with your allocations and to make reasonable annual withdrawals in the 3-5% range.

Save for Your Future

Always remember to pay yourself first by contributing to your 401(k) or retirement savings account. Your goal should be to save 15%-20% of your gross income annually. It’s a good habit to have your paycheck deposited into a savings account and transfer what you need for regular expenses into your checking account to help avoid spending unnecessarily. In addition, keep your fixed costs such as rent or mortgage as low as possible so any discretionary income can be diverted to savings.

While the Great Recession following the 2008 financial crisis is still fresh in the minds of many Americans, predictions vary on if and when the U.S. will enter another downturn. Smart financial planning entails being prepared for whatever life throws at you – whether it’s a recession or an unexpected financial setback. Get in touch with a member of the NEIRG team to help ensure that your assets are safeguarded now and in the future.