Updated: Oct 7
By Bill Taber
The financial headlines have been pretty negative lately. After an impressive increase of nearly 27% last year, the S&P 500 is down 22% this year. (1) Along with a plummeting market, inflation is a lot higher than expected, climbing to a 40-year high of 8.6% in May 2022. (2) And, in response to surging inflation, the Federal Reserve again raised interest rates on June 15 by 0.75%, the largest hike in a single meeting since 1994. (3) These troubling stats have experts and some of the country’s top CEOs like Elon Musk and JPMorgan Chase’s Jamie Dimon warning that a recession is coming. (4)
If you’re older than age 50, you’ve already survived six to seven recessions in your lifetime, (5) with the Great Recession of 2008 likely being the most eventful. You may have seen some people you know lose their homes, their jobs, or, at the very least, their peace of mind. We learned a lot from the last recession, so let’s keep the following four lessons in mind as the news continues to predict that a recession is on its way:
1. Don’t React Emotionally to the Market
If you checked your portfolio in the last few months, you probably saw a lot of steep red lines and likely some negative percentages. The numbers seem to be going down every day, which may make you worried you will lose all the money you have invested. You may even be inclined to sell your investments because you’re afraid you will keep losing more. While this is a pretty natural reaction to losses, it usually isn’t the best course of action.
If you choose to sell, you will have effectively locked in those losses for good, which could have you banging your head on the table once the price recovers. Of course, not every investment in your portfolio will recover, but, overall, after every market decline in history, investor portfolios tend to recover from their losses. (6) If you have a well-diversified and properly allocated portfolio, reacting emotionally and selling will only likely lead to you missing out on potential future gains during the recovery.
2. Plan the Next Few Years of Withdrawals
We all heard horror stories of people nearing retirement in 2008 who had their portfolios crippled by the housing market crash and the ensuing recession. With their retirement savings reaching an unprecedented low, they may have had to continue working for a few more years or maybe they had to downsize their lifestyles.
Although you usually don’t want to sell your investments during a market downturn, you may not have a choice if a recession happens during retirement. Having a comprehensive plan that details how much you will need to withdraw in the next few years from your accounts can allow you to prepare and create some wiggle room for market downturns.
3. Be Wary of “Trendy” or “Hot” Investments
Just as you shouldn’t immediately sell off your investments when the going gets tough, you should be cautious about buying into hot and trendy investments. There are tons of success stories about people getting rich overnight by buying into new, trendy cryptocurrencies or buying NFTs (non-fungible tokens), but these types of investments are usually nothing more than gambling.
Although there may be a legitimate future for these asset classes, they remain largely unregulated and misunderstood, leaving them susceptible to scams and pump-and-dump schemes. The Federal Trade Commission reported that U.S. cryptocurrency traders lost $575 million due to investment fraud from January 2021 until March 2022. (7)
As markets continue to plummet, trendy investments may start to seem more appealing and appear more promising than traditional investments. It’s essential to speak to a financial professional to weigh the risks before buying into investments that may be overhyped and overvalued.
4. Past Performance Does Not Guarantee Future Performance
In 2007, many people assumed that the housing market would continue to climb up and up, as it had for many decades before. Mortgage-backed securities were considered to be one of the best investments to make at the time because, historically, home values usually went up and people always paid off their mortgages … until they didn’t. (8) When home prices plummeted and borrowers defaulted, it sent the economy into a downward spiral.
The way an asset or market has performed in the past is never an indication that it will continue to perform in the same way. Nothing in finance—or life for that matter—is ever guaranteed. Everything comes with risk, so reaching the best results is a matter of balancing risk and reward.
Learn From the Past and Move Forward
It’s easy to become complacent when things are good and emotional when things go wrong. As we walk through our current uncharted waters, are you remembering the lessons you learned 13 years ago? Let this be a reminder that while we can’t predict the future or control the markets, we can take steps to make the right decisions for our money and set up our assets to succeed in any market environment.
No matter where you find yourself right now, it’s never too late to implement the changes necessary to help safeguard your financial future. We at TABER Asset Management would love to support you and provide knowledge, resources, and strategies for you to move forward with confidence. Get started today by scheduling a 15-minute intro phone call online or reaching out to us at 515-557-1860 or firstname.lastname@example.org.
Bill Taber is President and Founder of TABER Asset Management, an independent, fiduciary wealth management firm that strives to do one thing well: manage their clients’ money by creating wealth, building wealth, growing income, and preserving capital so they can experience financial freedom. With more than four decades of experience, Bill is dedicated to building relationships with his clients and their families and walking alongside them as they navigate financial decisions. His favorite days are the ones when he gets to witness the joy and relief on his clients’ faces when they realize they can pursue their dreams and live their ideal lifestyles. Bill is known for going the extra mile, getting things done with integrity, and working with a stewardship mentality.
Bill graduated from the University of Iowa with a bachelor’s degree in business administration and fell in love with the profession when he got to help one of his first clients—his father—turn his lifetime of hard work into a dream retirement. He got his start in the industry as a corporate services representative for Bankers Trust Company and spent decades working as Assistant Vice President of E.F. Hutton & Co. and First Vice President of Principal Financial Securities. He is also a graduate of the E-Myth Worldwide Mastery Business Development Program and is Series 65 registered.
In his spare time, Bill enjoys giving back to his community and served 11 years as a member of the Board of Trustees of Broadlawns Medical Center and 14 years as a Community Representative to their Board Finance Committee. He is also one of the founding members of the Greater Des Moines Connections Mentoring Program. When he’s not working, you can often find Bill spending time with his family and participating in one of his many hobbies, which include traveling to national parks, presidential libraries, and foreign countries; gardening; reading non-fiction; and practicing yoga, Pilates, and meditation. He also loves the simple joys of listening to music, going for walks or bike rides, and watching James Bond 007 films and any movie starring his favorite actress, Meryl Streep. To learn more about Bill, connect with him on LinkedIn.