It’s okay to worry about a possible recession. The unknown is scary. But don’t let those emotions drive you into a financial panic.
He’s not alone in feeling anxious: More Americans are worried about a looming recession than in years. Two-thirds of Americans (66%) say they expect a major recession is just around the corner, according to Allianz Life Insurance Company of North America’s Quarterly Market Perceptions Study* for Q2 2022. At this time last year, less than half (48%) expressed concern about a recession.
Anxiety about a potential economic downturn makes sense. Recessions are periods of significant decline in general economic activity that are part of the regular business cycle. The hard part is that we often don’t realize we’re in one until it’s in full swing. And we never know how long the decline will last or how low our investments will fall.
Every recession is different. The housing crisis of 2008 was completely different from the COVID-19 recession of 2020. If we are or are falling into a recession now, it will also be unique, with the stock market falling into bear market territory and inflation at levels but unemployment, so far, remains historically low.
Many people are looking for guidance on how to prepare for or ride out another recession, especially during this time of record inflation. Changing your spending habits could help in the short term. The cost of goods has increased, so cutting expenses where you can would help your bottom line right now. But eating out less and eating more at home, or buying generic products instead of brand-name products won’t set you up for long-term financial security.
While our focus often shifts to short-term needs in times of economic downturn, it’s important to keep a long-term view of your finances, especially when it comes to things like retirement planning. Take measured steps now to help create a secure financial strategy for your retirement, even when—or perhaps especially when—retirement is years away.
Here are some ways to prevent your recession worry from driving you into a panic.
Review your financial strategy
When financial factors outside of your control begin to play into your emotions, it’s time to review your written financial plan and stick to it. Ideally, you should have a detailed, written financial plan to refer to that was created with the support of a financial professional who anticipates contingencies during stressful times like these. If you don’t, the best time to create one is now.
A good financial plan will have addressed the potential risks of a retirement strategy such as inflation, a market crash, or a recession. Reminding yourself of the work you did to create that plan will help you stay calm in times of uncertainty.
You may review your financial plan and realize that it may no longer work for you. Maybe your financial situation has changed with a promotion at work or the kids have graduated from college. Or your risk tolerance has changed. As people approach retirement, they typically adopt less risky financial strategies. If that’s the case, consult with a financial professional about reworking your strategies for your current financial situation and goals. The most important thing is to talk to them before making any investment changes.
stay the course
If you intended to participate or are currently participating in your employer-sponsored 401(k), please continue to do so. Don’t leave the market. While the market may seem risky, simply not investing and keeping cash on the sidelines is also risky and almost a guaranteed way to lose purchasing power due to the rising cost of living with today’s record high inflation.
Money left out of the market, even in times of volatility, doesn’t work for you. While the money held in cash is not subject to possible market downturns, you will also miss out on profit opportunities when the market recovers. Trying to time exactly when the market will recover is a method doomed to failure.
Increasingly, however, people say they keep cash on the sidelines. In the latest Allianz study, 65% of respondents said they keep more money out of the market than they should due to concern about losses. That’s up from 57% in 2021 and 54% in Q4 2020. I’ve often heard it said that the market is the one place no one wants to buy when prices are low, only when prices are high, and that mindset can hinder your chances for a comfortable financial future.
At the same time, it’s important to remember to set aside some cash for an emergency fund or for emergencies. A substantial emergency fund will provide a crucial cushion for unforeseen expenses, job loss, or other costs. A good goal is to have six months’ expenses saved in cash.
Protect assets from market risks
Mitigating risk is part of a sound financial strategy. If you’re like most people, you’re looking to hedge your bets and protect yourself from market risks. The majority of respondents in the study (60%) said they believe it is important to have some retirement savings protected against loss.
Nothing is certain, but there are ways to lower your exposure to risk. This is especially important as you prepare for and enter retirement. This might be a good time to add a guaranteed source of income for life like an annuity to your portfolio. If you’re more concerned with helping reduce risk, there are investments like Exchange Traded Funds (ETFs), Fixed Index Annuities (FIAs) and Registered Index Linked Annuities (RIAs). in English) that provide some mitigation against losses and, at the same time, some potential growth.
Your retirement strategy is long-term
Consider the big picture and the long-term vision. It’s not about timing the market, it’s about timing in The market. Balances in your retirement investment accounts may be lower than they were at the beginning of this year. But, you haven’t actually lost any money. You only recognize the loss if you sell and collect.
Historically, the market has always rallied, and while past performance is no guarantee of future performance, it can provide some context for future actions. If you continue to invest now, you can be investing in the market with a lower initial investment and possibly reap the profits when the market improves.
Talk to a financial professional
I can’t stress this enough so I’ll repeat myself. If you’re thinking of changing your financial strategy, consult a financial professional first. Guidance from a financial professional can help you avoid making rash and uninformed adjustments to your portfolio that could sacrifice your retirement security.
*Allianz Life conducted an online survey, the Q2 2022 Quarterly Market Perceptions Study in June 2022 with a nationally representative sample of 1,004 respondents ages 18 and older.
Allianz Life Insurance Company of North America does not provide financial planning services.
The warranties are backed by the financial strength and claims-paying ability of Allianz Life Insurance Company of North America (Allianz). Variable Annuity Guarantees do not apply to variable subaccount performance, which will fluctuate with market conditions.
Products are issued by Allianz Life Insurance Company of North America (Allianz) and distributed by its affiliate, Allianz Life Financial Services, LLC, Member FINRA, 5701 Golden Hills Drive, Minneapolis, MN 55416-1297. 800.542.5427
Vice President, Advanced Markets, Allianz Life
Kelly LaVigne is vice president of advanced markets for Allianz Life Insurance Co., where she is responsible for developing programs that help financial professionals serve clients with tax-related, estate planning and retirement strategies.