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- Financial planner Michael Garry opened his firm in 2006 and helped clients through the Great Recession.
- With a possible recession on the horizon, he advises sticking to your plan and investing more if you can.
- He also says recessions can have a silver lining: cleaning up dysfunctional industries.
The news is filled with stories about high prices at the grocery store and the gas pump, and the “R” word (recession) is coming up more often. For those who lived through the Great Recession of 2007 to 2009, the prospect of another downturn is unsettling.
Michael Garry founded Yardley Wealth Management in 2006, so he’s been here before. Insider spoke with him about what he learned during the Great Recession and how those lessons apply to today’s investing environment.
Lessons from the last recession
When thinking about the last recession or the current economic slowdown, Garry says, “The biggest thing is to keep the long-term perspective that recessions and bear markets are both necessary and temporary.”
When he was rebalancing accounts and buying stocks in the late 2000s, some people thought he was crazy, but the strategy worked over the long term because the stocks bounced back.
“It’s very understandable for people to be anxious” right now, Garry says, noting that “uncertainty breeds fear.”
He suggests people focus on the big picture, which is that, historically, markets have recovered, and that’s likely to be the case today. “Maybe it won’t get better, and we’ll be selling pencils on the street,” he says, but he doubts it.
Why recessions can ultimately be a good thing
Garry pointed out that one of the after-effects of the Great Recession was the strengthening of the financial sector.
Bad ideas — business ventures that aren’t sustainable — get washed away during a recession. That’s terrible news for those who work or invest in those sectors and lose their jobs or investments. However, the sweep often leaves the economy more robust overall.
“Banks are in so much better shape than they were” during the last recession, he says, noting that they are carrying less debt than they did in the 2000s. “They learn from mistakes and get better.”
5 tips to keep your portfolio healthy today
Garry shared these tips for investing during the current downturn, whether it becomes a full-blown recession or not.
Stick with your plan
“If you have a plan, stick with your plan,” Garry says. “Don’t change that because of the recession.”
Don’t change your investment profile in a panic or put your money under a mattress. People who stuck with their investment routines during the Great Recession did very well after it was over, as stocks saw significant gains.
Don’t make bets on future industry performance
What’s obvious in hindsight isn’t easy to predict beforehand. Garry recommends investing in asset classes such as large-cap or small-cap stocks, foreign investments, etc., rather than one industry. That hedges your bets by spreading your investments across many industries rather than concentrating on one area that could collapse.
If you can invest more, do
If you can increase your investments right now, “I would encourage it,” Garry says. “It’s like you’re buying stuff on sale.”
Putting more into your investments now is the definition of buying low, so it’s a good idea. And, if retirement is a few years in the future for you, think of this as a bonus and take advantage of stocks being down.
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Avoid get-rich-quick investments
Economic uncertainty can make us susceptible to investments that promise fast returns, but traditional investments remain your best bet.
“When things are a little unsettled,” Garry says, “it’s so much easier to believe that someone out there knows what you don’t.”
It’s probably not a coincidence that the first cryptocurrency, bitcoin, was established at the end of the last recession, promising to create wealth out of thin air. Crypto doesn’t seem to be doing well at the moment. It could recover, or it might become one of the sectors that get swept away during this downturn.
Be flexible with your retirement plans
If you’re already retired or about to retire and need to draw down your portfolio, a bear market presents a real problem.
Garry says that if you need 2% to 3% of your retirement savings to cover your living expenses, a recession won’t affect you much. However, consider changing your retirement plans if you need to draw down 4% or more.
For example, Garry suggests if you were planning to retire this year and take an expensive trip, push that or anything that requires a large outlay of cash back a year or two. If you can postpone your retirement or do some consulting until the market recovers, “It might help your plan a whole lot,” he says.
A caveat and a hopeful sign
One of the most significant risks in a recession is also the hardest to see coming: unemployment. Garry has worked with clients comfortable in their jobs, often earning good incomes, who got laid off unexpectedly because of downsizing or acquisition. If that happens to someone in their 50s, it can be hard to get another job and even harder to get a job at the same level as your last job.
A period of unemployment or underemployment close to retirement age, or being forced into early retirement, can have a significant impact on retirement. So it’s a good idea to keep your CV current when the economy is volatile.
That’s the bad news, but Garry had good news as well. He noted that markets look forward, not backward, and the last 100 years of market data show that stocks start to recover in the middle of a recession, not after it ends.
For example, if we were to have a recession for all of 2023 and exit it in 2024, you could expect the market to start growing sometime between April and August of 2023. Garry noted that we could already be seeing that effect, as October and November have been better months for the stock market, which might be signaling that we’re halfway through the current downturn.
One last piece of advice: “It’s always a good time to talk to your advisor,” Garry says. If anything changes in your situation, make sure your investment plan keeps up.