What exactly constitutes a recession is hard to define and the definition has been getting a lot of publicity recently, but generally, a recession is considered a period where a nation’s economic output is declining. Recessions are commonly described as a fall in GDP (gross domestic product) in two successive quarters, but in reality can only be officially declared by the National Bureau of Economic Research (NBER).
A blog post from the White House detailed how economists can determine whether the economy is in a recession. In the post, the White House implied that recessions should be measured by several indicators — except for a fall in GDP in two successive quarters. As you can see, the way we identify recessions is a somewhat gray area and is typically not known until you are already in one.
Are you still wondering, “What does a recession mean for me?” Whether or not we are currently experiencing a recession, or are bound to start one soon, you should know how it might affect your retirement accounts and investments.
What does a recession mean for my retirement accounts and investments?
- Stock market declines — During a recession, often (but not absolutely) the stock market will decline.
- Loss of portfolio value — When the stock market declines, the total value of your investment portfolio typically decreases.
- Increase in inflation — Oftentimes, prior to a recession an increase in the national inflation rate occurs because the economy has overheated. This means your savings could become less valuable very quickly.
What can you do for your retirement accounts during a recession?
- Don’t stop putting money into your 401(k) — Now is especially not the time to stop or slow making payments into your 401(k) during your retirement planning. If possible, you should be trying to keep making steady payments for interest to compound.
- You could actually increase your wealth during a recession — If you have a reasonable chunk of money that you have set aside or saved up, you could make investments that might not have been as advantageous to you outside of a recession. When demand decreases, typically so does the price of investments. If you’re willing and ready to invest, you could obtain great investment opportunities at a lower cost to you.
Talk to a ProVise CFP® professional about what a recession could mean for you and your retirement plan
At ProVise Management Group, our CERTIFIED FINANCIAL PLANNER™ professionals can get to know you and your current financial circumstances, goals, risk tolerance, and personal values to help you develop a plan that works for you. We can also create a written plan for you at a fiduciary standard of care. All our written plans come with an unconditional money-back guarantee. If you are unhappy with your written plan, you can return it to us, and we will refund 100% of the fee paid.
Are you ready to talk to a professional about what a recession could mean for you and your retirement plan? Contact ProVise today to schedule a complimentary consultation.