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Months of stock market volatility, rising inflation and rising interest rates have left many investors wondering if a recession is coming.
The stock market again recorded a fall on Thursday S&P 500 its capping Worst six-month start for a year since 1970, Overall, it is down more than 20% year to date. Dow Jones Industrial Average And Nasdaq Composite There has also been a significant decline since the start of 2022, falling by more than 15% and nearly 30%, respectively.
Meanwhile, according to the University of Michigan, consumer sentiment about the economy has declined. consumer surveyA 14.4% drop in June and a record low for the report.
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Some 68% of chief financial officers expect a recession during the first half of 2023 CNBC’s CFO Survey, However, expert forecasts differ regarding economic slowdown likely,
“We all understand that markets go through cycles and recessions are part of that cycle we could face,” said certified financial planner Elliot Herman, partner at PRW Wealth Management in Quincy, Massachusetts.
However, since no one can predict when and if a downturn will occur, Harman stresses clients to be proactive and make sure their portfolio is ready.
Diversify your portfolio
Diversification is key when preparing for a potential economic downturn, said Anthony Watson, a CFP and founder and president of Thrive Retirement Experts in Dearborn, Michigan.
You can reduce company-specific risk by choosing funds instead of individual stocks because you’re less likely to see a company go bankrupt within an exchange-traded fund of another 4,000, he said.
Value stocks tend to outperform growth stocks going through a downturn.
Anthony Watson
Founder and President of Thrive Retirement Specialists
He suggests checking out your mix of growth stocks, which are typically expected to provide above-average returns, and value stocks, typically worth trading for less than assets.
“Value stocks tend to outperform growth stocks going into recession,” Watson explained.
International exposure is also important, he said, and many investors default to 100% of domestic assets for stock allocations. While the US Federal Reserve is aggressively fighting inflation, the strategies of other central banks could trigger another growth trajectory.
Rethink bond allocation
Since market interest rates and bond prices are usually move in opposite directionsThe Fed’s rate hike has lowered bond prices. Benchmark 10 year treasurewhich increases when bond prices fall, Tops 3.48% on June 14Highest yield in 11 years.
Despite falling prices, bonds are still a significant part of your portfolio, Watson said. If the stock is trending bearish, interest rates may also drop, causing a correction in bond prices, which can offset the stock’s losses.
“Over time, that negative correlation starts to show itself,” he said. “It doesn’t necessarily have to be day-to-day.”
Advisors also consider duration, which measures a bond’s sensitivity to interest rate changes based on the coupon, the time to maturity, and the yield paid through the period. Generally, the longer the term of the bond, the more likely it is to be affected by interest rate hikes.
“High-yield bonds with shorter maturities are now attractive, and we have placed our fixed income in this area,” said Harman of PRW Wealth Management.
Assess Cash Reserves
Between high inflation and low savings account yields, holding cash has become less attractive. Although, Retirees still need a cash buffer to avoid what is known as “Order of Return” Risk,
You need to be careful when you are selling assets and making withdrawals, as this can cause long-term damage to your portfolio. “That way you fall prey to a negative sequence of returns, which will eat away at your retirement,” said Watson at Thrive Retirement Specialists.
However, retirees with access to a significant cash buffer and a home equity line of credit can avoid tapping their nest egg during periods of deep loss, he said.
Of course, the exact amount required may depend on monthly expenses and other sources of income, such as Social Security or a pension.
[1945से2009तकऔसतमंदी11महीनेतकचलीकेअनुसारनेशनल ब्यूरो ऑफ इकोनॉमिक रिसर्च, आर्थिक चक्रों का आधिकारिक दस्तावेज। लेकिन इस बात की कोई गारंटी नहीं है कि भविष्य में मंदी लंबी नहीं होगी।
“संचय चरण” में निवेशकों के लिए नकद भंडार भी महत्वपूर्ण है, सेवानिवृत्ति से पहले एक लंबी समयावधि के साथ, कैथरीन वेलेगा, एक सीएफ़पी और विनचेस्टर, मैसाचुसेट्स में ग्रीन बी एडवाइजरी में धन सलाहकार ने कहा।
मैं कई लोगों की तुलना में अधिक रूढ़िवादी हूं क्योंकि मैंने आपातकालीन खर्चों में तीन से छह महीने देखे हैं, और मुझे नहीं लगता कि यह पर्याप्त है।
कैथरीन वेलेगा
ग्रीन बी एडवाइजरी में वेल्थ कंसल्टेंट
“लोगों को वास्तव में यह सुनिश्चित करने की ज़रूरत है कि उनके पास पर्याप्त आपातकालीन बचत है,” उसने कहा, संभावित छंटनी की तैयारी के लिए बचत में 12 महीने से 24 महीने के खर्च का सुझाव दिया।
“मैं कई लोगों की तुलना में अधिक रूढ़िवादी हूं,” उसने कहा, तीन से छह महीने के खर्चों के अधिक व्यापक रूप से टाले जाने वाले सुझाव को ध्यान में रखते हुए। “मुझे नहीं लगता कि यह काफी है।”
अतिरिक्त बचत के साथ, बिलों को कवर करने के लिए अपनी पहली नौकरी की पेशकश को स्वीकार करने के दबाव को महसूस करने के बजाय, नौकरी छूटने के बाद अपने अगले करियर कदम की रणनीति बनाने के लिए अधिक समय है।
“यदि आपके पास तरल आपातकालीन बचत में पर्याप्त है, तो आप अपने आप को और विकल्प प्रदान कर रहे हैं,” उसने कहा।