From rising inflation and interest rates to supply chain issues and more, the economy has no doubt been through the wringer lately, bringing most of us along for the ride (through no choice of our own). To further understand the factors you should be aware of when the economy is less than stellar, West Michigan Woman tapped the expertise of Melissa Jean Stewart, CFP®, Founder, ClearVista Advisors.
First, it's imperative to be prepared and proactive for the future. According to Stewart, if we're not already in a recession, then we're likely to see one in the next 12 months. However, that doesn't mean we're going to be faced with immediate doom and gloom.
"Remember the economics class you took in high school? It's important to remember recessions are a normal part of the economic cycle," she said. "We have a time period of expansion and then of recession. On average, America's post-war recessions have lasted only 10 months, while periods of expansion have lasted 54 months."
While understanding that everyone's financial situation is different, Stewart shared her top tips for when the economy begins to head downward.
REVIEW YOUR HOUSEHOLD FINANCES.
"You should have three to six months of your monthly expenses in a savings account you can use for emergencies," Stewart said. "This can help cover your family during time periods of unemployment or unexpected expenses. If you don't have this amount saved, what are things you can cut out of your budget to help increase your savings?"
CONSIDER APPLYING FOR A HOME EQUITY LINE OF CREDIT.
"This is a revolving source of funds, much like a credit card, that you can choose to access when needed," Stewart explained, noting that a home equity line of credit can also help cover unexpected financial situations. "A mortgage loan officer can explain how a home equity line of credit works in more detail."
REMEMBER: INVESTING IS ABOUT TIME IN THE MARKET, NOT TIMING THE MARKET.
Stewart emphasizes keeping in mind that long term investment strategies (including retirement investments designed to be invested for 10 years or longer), will have periods of short-term declines.
"In investing, you don't realize a 'loss' in your investment strategy until you sell the investments, at which point your losses go from 'unrealized' paper losses to 'realized losses,'" she said. "I've had conversations recently with investors wanting to move all or some of their investments to cash and 'wait things out until the dust settles.'"
The problem with this strategy, Stewart explained, is that by the time investors decide to get back into their investments, the market will most likely have already recovered.
"Investors will typically wait until they 'feel better about things,' whether that be lower inflation, midterm elections in November, Russia and Ukraine resolution, etc.," she said. "By the time the dust has settled and investors 'feel better' about the future outlook, the investments they would have been invested in (had they not sold them) will have typically recovered some, if not all, of the losses while the investors were sitting in cash."
Are there any actions that should be avoided right now? According to Stewart, there are.
"If you don't have your emergency savings built up and your credit cards paid off, then items like vacations and other discretionary spending—the things you want vs things you need—should go on the back burner for the time being," she said, noting that now is a great time to get your financial house in good order. "We know historically the stock market has recovered over time. Some might say that when the market is down by 20%, it's 'on sale.' If you have money you don't need for five or more years, you may want to consider investing it."
And remember, professionals are here to help if you're unsure of what to do next.
"Our economy has experienced times of unrest like this before and it has always recovered. If you have a financial advisor, reach out to them to review your personal financial situation and discuss your concerns."
Disclaimer: Melissa Jean Stewart is an Investment Advisor Representative with Dynamic Wealth Advisors dba ClearVista Advisors. All investment advisory services are offered through Dynamic Wealth Advisors.
Written by Sarah Suydam, Managing Editor for West Michigan Woman.
This article originally appeared in the Oct/Nov issue of West Michigan Woman.