Recession Risks? Here's How To Plan

Описание: Is a recession on the horizon?

Many investors fear that with the dramatic increase in inflation and the Federal Reserve raising interest rates that our economy could be forced into a recession.

To step back, let's define a recession and why it could happen.

A recession is defined by 2 consecutive quarters of declining GDP. And GDP is comprised of consumer spending and government spending. In essence, if Americans collectively spend less during a 6 month period than they did the previous quarters, that would be a recession.

So why would Americans spend less? Possibly due to higher prices, which we are definitely experiencing. Or also because of increased interest rates. Or maybe a possible job loss.

As discussed in the video, while prices have gone higher due to inflation, the unemployment rate is still low by historical measures at 3.7%.

One could argue that this unique set of circumstances doesn't guarantee a recession.

Nonetheless, if a recession does occur, long term investors should continue to stick to their financial plan and not let a singular economic data point drive investment decisions.

An investment strategy should be based upon
1) Financial Goals
2) Time horizon
3) and Risk Tolerance

Since economic data is backward looking and the stock market is forward looking, there have been times in the past where the stock market starts to recover from a drop even before the economic data starts to improve. Which means investors can always wait for life to feel better before investing since there is a high probability of missing out out on investment opportunity.

In the end, investors should understand the risks and opportunities and build an appropriate investment strategy based on their goals and timeline.