12 Ways to Make Yourself Recession-Proof
In the latest issue of Money magazine, Stephen Gandel presents a special report on “Survival Strategies“:
“The economy and the markets may be in for a hard fall. Here’s how you and your family can land safely.”
I thought I’d share the 12 points that the article makes as well as my comments on each. All this after the markets have their best one-day gain in 5 years. Oh well, I think these points are applicable regardless of the outcome.
1. Recessions: Learn the Facts
Apparently, the last time we were in this type of economic downturn was in the early nineties. The article states that it took about 3 to 6 months for the economy to turn around once it hit full recession. I have no idea what this current down-turn entails, but if history repeats itself, and we do go into a recession, we’ll be up and out of this thing before too long. I’m not going to panic, but I still think it’s a good idea to brace yourself a bit. That’s what the other 11 points are all about.
Shore Up Your Balance Sheet:
2. Stock Up on Emergency Funds
In the article, it’s suggested that you move from a three months expenses e-fund to the six month variety. I think more emergency cash is always better, so I’m all in favor of this move. If you can move towards more short-term savings then do so. If you don’t have an emergency fund you should start today. Need incentive? Get $50 free for using one of my referral bonuses.
3. Slim Down the Debts
It’s always a good time pay off debt, but apparently even more so in a potential recession. When you’re stocks are flying high you can afford paying a little debt interest, but not now. Check out how I paid off my high-interest credit cards.
Shore Up Your Portfolio:
4. Regain Your Balance
It’s easy to set your retirement savings on auto pilot and just forget about it. Have you checked your 401K lately? What funds are you invested in? Are they properly balanced for someone your age? In my opinion, target date funds are a good way to make this happen.
5. Venture, Carefully, Beyond Our Shores
A quarter to a third of your equity holding should be in foreign stocks says the author. That seems high to me. Again, I let my target date fund do the work for me here.
6. Scared? Then Embrace Bonds
If you think we’re still headed downward then you may consider moving more of your portfolio into Bonds. The author says to do this instead of trying to time the market with stocks.
Work Harder and Smarter:
7. Get to Your Company’s Core
Working on key projects for you company will apparently make you less likely to lose your job if times get tougher. Make sure you are generating revenue for your company. Any position can add value. Be proactive and find the little things that add up to big savings for your boss.
8. Get to the Office and Stay There
Make sure you are getting plenty of “face time” with your boss. If you work from home often, consider stopping that practice for a while. Also, you might want to be the guy or gal who is first in and last out. Can’t hurt.
9. Cozy Up to a Headhunter
Get on Facebook or Linked In now and connect with recruiters in your field. Believe me, they’d love to hear from you. While you don’t necessarily have to begin your job search, make sure you have a few connections. The few unwanted interruptions I do get from these recruiters I don’t mind because of how they’ve helped me out in the past.
10. Get Ready for Next Time
The author mentions laying the groundwork for an industry switch. Health care, is now, and for a long time will be, a very hot field. Consider a career switch and begin investigating the path needed to get there.
Focus on the Home Front:
11. Be a Picky Buyer
The author mentions offering “10% below asking price” if you are in the market for a new home, and offering your home for “slightly less than comparable homes” if you are selling. I don’t know much about real estate so I won’t comment but to say I think there are plenty of deals out there right now. I wish I had a lot more cash in order to take advantage of some of the deals available.
12. …And a Savvy Borrower
If interest rates continue to fall, then you may be able to justify refinancing your mortgage. Apparently, the biggest savings may come on jumbo mortgages above $417,000. That’s a big mortgage. One of the things my Father taught me is that the US Government has long since learned that the housing market is what drives our economy. Therefore, they will do anything to keep it propped up. Look for plenty of bailouts to lenders and borrowers.
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Like I said above, while I think it’s great to look at this stuff now, most of these points are things you should consider all the time with your finances, not just in a downturn.
Photo: by soldiersmediacenter
Bob, thanks for commenting. I’d encourage you and all readers to check out my Disclaimer and my About section before dishing out warnings.
This blog is an attempt at a discussion about personal finance. It’s not a one way street, so I appreciate your comment. But please honor my choice of an open forum by respecting and understanding what kind of medium you’re in. This is a personal blog.
To say something “seems” one way doesn’t mean I’m making claims. I simply said it “seems” that way to me.
Why does it seem that way to me? I’ll elaborate:
1. Because I freakin’ love the US and our economy. You seem like a US hater to me. Sad. Regardless of a little downturn, we are living in the free-est, strongest, most-powerful nation is the world. I love the companies that are based here and like their future. Therefore, I invest in them.
2. Because I don’t know anything about other Countries, their economies, and their political systems. I don’t invest in what I don’t know or trust.
3. Because most of the financial advice I’ve run across in my 32 years tells me so. I suspect they tell me this because other countries experience more political unrest and inflation than we do and staying at home is more conservative. I invest for the long-term…this makes the most sense for me…and likely most of the readers of this blog.
So, there’s some good basis for my claims, Bob.
“A quarter to a third of your equity holding should be in foreign stocks… That seems high to me.”
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So… why does that seem high to you?
Foreign equity accounts for over 60% of the world’s equities. If you hold less than 60% in foreign equities you’re essentially making a bet that the US markets will outperform the rest of the world… you’re choosing to concentrate your holdings in the US.
So the real question is this: Why would you bet on the US and against the rest of the world’s equities in this environment? The dollar is losing ground every day. The economy is being grossly mismanaged in the US… there are good reasons to favor foreign equities over US equities. A certain amount of “home-bias” makes sense, of course, but you seem not to have any basis whatsoever for your claim that 25% of equity holdings in foreign stocks is too much. It appears that you are making claims absent any knowledge whatsoever.
I have noticed that there seems to be an explosion of online financial blogs written by people who present themselves as quasi-experts, yet know little more than the last financial puff piece they read. And I say this as someone who has written for Money Magazine, the magazine quoted above.
Be careful folks! There is a great deal more bad information floating around than there is good information.
PS: The fact that the author of this piece moved his entire 401(k) to a load fund should tell you all you need to know. He/she could use some help and is in no position to be offering financial advice.
These are all great points and very sensible. As you say it is good to do these things anyway even if you don’t think we are heading towards a recession.