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2023 EP0415 | Financial Updates | 4 Tips for Investing During a Recession

Planning Matters Radio / Peter Richon
The Truth Network Radio
April 15, 2023 10:00 am

2023 EP0415 | Financial Updates | 4 Tips for Investing During a Recession

Planning Matters Radio / Peter Richon

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April 15, 2023 10:00 am

Investing during a #recession requires a very different approach. In light of recent market volatility, #inflation, and interest rate hikes from the Fed, Peter with Richon Planning and Erin Kennedy walk through a few tips for investing during a recession, including:

-Is Cash Really King?

-Defensive Stocks: healthcare, utilities, and consumer staples like food and beverages are fairly recession proof

-Dividend Stocks and Fixed Income Investments like #Bonds

-Keep Investing, a strategy known as Dollar Cost Averaging

If you'd like to speak with Peter to determine if your portfolio is recession-proof, or if you'd just like to talk through these recent headlines, feel free to give him a call at (919) 300-5886 or set up a complimentary appointment by visiting

#wealthmanagement #markettrends #marketvolatility #recessionproof


We want you to plan for success. Welcome to Planning Matters Radio.

Peter, good to see you today. We're talking four tips for investing during a recession. With recent market volatility, inflation and interest rate hikes from the Fed, we wanted to walk through a few tips for investing during a recession, even though a lot of experts say we are not in a recession right now. But cash is considered king, of course, during recessions. Do you recommend people allocate a larger portion of their portfolio to cash during times like this? Well, it would be fantastic to have all the cash in the world before entering into a recession, right?

But nobody has the foresight to catch things right at the peak, not consistently and every time. And for the rest of the time, cash is actually a pretty poor asset class. It doesn't return a whole lot, doesn't keep up with inflation. And whether or not we're in a recession or not, we can debate that just in a down market in general.

I think the these tips we'll review today are good. But textbook definition, we were actually entering into a recession last July of 2022. However, yeah, cash is a fantastic asset to have and hold during the midst of a down market or recession. However, it is hard to time that and it does not return much to keep up with inflation. And so even looking at things like CDs right now is a reasonable alternative. I'm seeing great rates on six month to one year CDs. I'm seeing great rates on treasuries. I'm seeing great rates on fixed annuities.

Bonds are up in their yield. So there's a whole plethora of cash alternatives that could generate a little higher interest or yield. So have your six month emergency account three to six months somewhere in there. But above and beyond that, that is a lower and an upper limit. The lower limit is to avoid emergencies. The upper limit is so that not too much of your money is losing purchasing power to inflation. Right, right.

It has to be happy balance. Okay, next I want to talk about defensive stocks, right? Healthcare, utilities, consumer staples. These are fairly recession proof since people still get sick and we still need to eat.

Yeah, kind of all weather staples, right? And things that have fared well or remained stable through previous downturns and things that we are still going to utilize regardless of economic conditions are good positions to hold while we are going through market and economic turbulence because we still need to brush our teeth. We still need to eat.

We still get sick as you stated, Aaron. So those things are going to generally hold their value a little bit better. And in many cases and instances, those same companies also kick out dividends for stock owners, which is another great defensive play during recessions or times of market downturns. Yeah, exactly, Peter.

You're kind of exactly reading my mind here. Dividend stocks. And then you also mentioned bonds, but let's just break these two down.

Yeah. So we've got a portfolio of dividend producing stocks. They include many of those staple sectors, healthcare, defense, consumer goods and staples. And those companies generally hold their value a little bit better, but it's not even necessarily about the value of the individual stocks or the portfolio. It's about the income that they can generate during down markets. Now, dividends are not guaranteed. And that is what we need to know and understand is that dividend producing stocks can be a fantastic supplement and addition to a good income portfolio in retirement, but they should not be exclusive and we should not be completely 100% reliant on the dividends because dividends can be cut, adjusted, even eliminated by companies. And so we want to create that income. It is fantastic to include that, but it is not necessarily guaranteed the same way that a bond yield, once you get into a bond or the interest rate on a fixed annuity or a CD might be.

And so we're looking at those as well. Bond yields have increased. 2022 was a rough year for bonds, Erin. It was one of the worst years on record for the traditional 60, 40 portfolio mix because of how bad things were on the fixed income side. Silicon Valley bank understands that perhaps as good as anyone as well. But when interest rates rise, bond values go down, but we can actually go out shopping for better yields from bonds. And that's why it may be a good time to look at bonds or treasuries, or again, fixed annuities, which I think have shown that they make a good supplement or replacement for the bond portion of the portfolio, because generally they lower overall fees, they lower overall risk and they increase the interest rate or rate of return in many instances. So I think it is a good time to shop around for income generating positions in a portfolio, despite the volatility that we may have seen and may continue to see. Right. And last, even during downturns or especially during downturns, keep investing, which is known as dollar cost averaging.

Right. And here's where the mental, emotional, psychological element of money don't necessarily mix well with our actual behavior and what is best mathematically, but we want to keep investing. If at all possible, continue to make those deposits because those are the deposits that are going to give you the highest growth potential over time as the market rebounds, those positions, those investments that you bought at the bottom, those deposits that you made into your 401k or brokerage account or IRA. While everybody is worrying about how much the market has lost, those are the dollars that are going to gain the most in the long run. And it is a little bit counterintuitive.

I hear people saying, oh, the market's down. Should I stop contributing to my 401k? Absolutely not. So long as you are confident in your ability to meet your expenses, to pay your bills and the stability of your employment, you should try to, as much as possible, continue or even increase the amount of contributions you are making. I mean, I'm a little bit younger. I'm 42, Aaron, and I've been through four of these kind of once in a lifetime opportunities are really more like once every five to 10 year opportunities. But the dotcom bubble, the great recession, Corona, COVID, the onset when we had that big downturn and then 2022, these have all been fantastic investment opportunities where I'm trying to do my best to get as much in as possible, not stop those contributions. Now, the story changes and the coin flips when we are in retirement and making withdrawals. And we do need to plan specifically for how to create income during downturns. But if you're in the investment and accumulation phase, by all means, keep going, keep going, keep going.

And this all circles back to what you tell me all the time. It's so important not to react emotionally to all these headlines, even though they can be scary and just stick with your financial plan. And this is a cute little primer of tips here, Peter, for investing during recession. Keep calm. Don't try to time the market. Avoid panic selling. Stay the course.

And unfortunately, not enough people do those things or keep that calm head. Dow Bar is a research institute that studies the market returns versus investor returns. And they have consistently for about three decades every year shown that investors underperform the market, mostly because they don't do those four things.

Right. And I don't know, Peter, if you wanted to address behavioral finance, right? Yeah, well, we buy we buy at the top there where where it's euphoria and we sell at the bottom where despondent and we repeat that cycle until we go broke. Unfortunately, that is kind of the Wall Street joke that is coupled by how do you make a million dollars in the market? Well, you start with two, right? So we need to try as much as possible to remove the emotion.

And if we could just cut some of the news out, I think that in many ways that our access to news and information is is a good thing, but it's also in many ways a bad psychological thing for for us in many, many ways and aspects there. It all comes back to having that financial plan, though. So, Peter, if somebody wants to talk to you about creating their own unique financial plan, what's the best way to reach you? And that's a big part of why the plan is important. Absolutely, Aaron. Give us a call.

Nine one nine three zero zero five eight eight six nine one nine three hundred fifty eight eighty six. Or you can visit online Rashaan planning dot com. It looks like rich on planning dot com. And we do offer to put together an optimized retirement plan, maybe help you remove some of that emotion and stick to a plan having that in your hands and in place. Very valuable. All right, Peter, thank you.

Thank you. This has been Planning Matters Radio. The content of this radio show is provided for informational purposes only and is not a solicitation or recommendation of any investment strategy. You are encouraged to seek investment tax or legal advice from an independent professional advisor. Any investments and or investment strategies mentioned involve risk, including the possible loss of principal advisory services offered through Brooke's own capital management, a registered investment advisor, fiduciary duty extends solely to investment advisory advice and does not extend to other activities such as insurance or broker dealer services. Advisory clients are charged a quarterly fee for assets under management while insurance products pay a commission, which may result in a conflict of interest regarding compensation.
Whisper: medium.en / 2023-04-15 12:34:19 / 2023-04-15 12:38:23 / 4

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