Many people greatly fear the thought of a recession. They cannot handle the idea that their investment portfolio will decline in value. They cannot handle the volatility. Fear leads people to make poor decisions. But I do not believe you should be afraid of a recession. Why? I share why you have reason to remain hopeful in this episode of Best in Wealth!
Outline of This Episode
- [1:08] One positive thing you can do today
- [4:04] Are we in a recession yet?
- [7:00] Why I do not fear a recession
- [10:15] How to face recessions head-on
Are we in a recession yet?
In his recent article, “Are We In a Recession Yet?” Benjamin Curry discusses whether or not we are heading for a recession. He goes on to define a recession as, “Two consecutive quarters of negative gross domestic product (GDP).” This happened in the first half of 2022. Yet the organization that defines US Business Cycles (National Bureau of Economic Research) does not believe we were in a recession. They do not believe that we are now.
When we think about a recession we immediately worry that the value of our portfolios will decline. We think about the Great Recession of 2008. In 2008, the S&P 500 was down almost 38%. It dropped 53% from its peak before the recession ended. That is why everyone is scared when talk of a recession abounds. But I do not fear a recession. Why?
Why I do not fear a recession
When there is a recession, we get to buy everything on sale. If you could pinpoint the dollars that have multiplied that you invested in 2008–09, it is unbelievable. When the market is doing well, we cannot buy as many shares. I plan on investing for a long, long time.
Why else do I not fear a recession? Because I expect one to happen an average of every six years. If you are an investor, you have to embrace a long-term mindset. We expect recessions—it is part of the deal.
If you are retired, you still need a long-term outlook. We still follow the same philosophies. You have to expect a recession. Your portfolio will go down. But with the right advisor, the right withdrawal sourcing in place, and the right diversification, you do not have to be afraid.
Even when we are not in a recession, we can expect the S&P 500 to have “down” years every four years.
How to face recessions head-on
I believe that if we look at what happened in the past, we will be less fearful about the future. We have reliable stock market data dating back to 1926. It sits at the University of Chicago at The Center for Research In Security Prices. Since 1926, we have had 16 recessions.
Let’s say—in 1926—your parents put $100 in a diversified investment account. There was a mild recession immediately after. We have fluctuated through numerous recessions and depressions since then. In between every recession, the stock market rallied and bounced back quickly. Your $100 multiplied. Any guess what it is now? Almost 100 years later, that $100 is now worth around $900,000.
What does the past tell us? Despite 16 recessions, we have always rallied. I do not fear recessions. I fear for those who do not expect and plan for recessions. So what do family stewards need to do? Listen to hear my thoughts.
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The Best In Wealth Podcast is hosted by Scott Wellens. Scott Wellens is the principal at Fortress Planning Group. Fortress Planning Group is a registered investment advisory firm regulated by the Securities Act of Wisconsin in accordance and compliance with securities laws and regulations. Fortress Planning Group does not render or offer to render personalized investment or tax advice through the Best In Wealth Podcast. The information provided is for informational purposes only and does not constitute financial, tax, investment or legal advice.