3 ways to recession-proof your portfolio

January 13, 2023

Allworth Co-CEO Scott Hanson shares his advice for protecting your money and investments during times of economic turbulence.

Whether you are a long-time client of Allworth Financial, or just looking for ways to shore up your financial situation, while history shows that the recent market turbulence won’t last forever, it’s tough to ignore, especially when there’s all this talk about a recession.

First, what is a recession?

A recession is generally defined as a significant, widespread, and prolonged downturn in economic activity where we experience two consecutive quarters of negative gross domestic product (GDP) growth.

So, among other things, recessions can make it harder to borrow money and lead to lower wages and higher unemployment.

But after more than 30 years of advising clients, I long ago came to understand that even recessions are not that cut and dried. In fact, the beginning and end of some previous recessions have been so difficult to pinpoint, they were over before the government even acknowledged that one occurred.

And while there are plenty of so-called experts calling for a recession to hit this year, the truth of the matter is, no one can really know for sure when one might officially begin.

So, recession or no recession, what should you do?

Here are three ways to recession-proof your money and your mind.

1. Stay invested, stay diversified, and stay free of high-interest debt

The Federal Reserve raising interest rates may have nominally bumped up the pennies you are getting from your bank’s savings account (though, even then, you are still miles downriver in the race to keep up with inflation), but even more important is the fact that your debt is probably getting more expensive, as well.

Pay it off.

And while 2022 might have scared some people out of the market, this could well be the worst time of all to sell. I have said it before, and I would not in-fact necessarily mind if these were the last words I ever said: If you sell when the market is down, the only thing you do is lock in your losses.

So, invest (wisely). Save (copiously). Pay down debt (obsessively). And think long term (with the help of your fiduciary advisor).

I am not promising you the end of our collective short-term economic (and market) pain. But here is where that automatic rebalancing kicks in and, most importantly, helps to keep your asset allocation properly diversified.

And that helps protect your money.

Simply, try to see yourself as the tortoise and NOT that hare. (Remember, there’s an extremely good reason that virtually all of us know about that fable.)

2. Ignore the word “forecast” and always forge ahead

As studies have repeatedly shown, it is virtually impossible to predict market outcomes a month, two months, or even six months in advance. In fact, a significant majority of active investment managers don’t come close to accurately forecasting how the markets will perform in the near term.¹

My experience has been, that while admittedly not everyone, certainly most investors are happier if they work with a fiduciary who helps them build a long-range, comprehension investment and financial plan. That would be someone who doesn’t try and “time” the market (as active investment managers do), and who does the worrying and the periodic rebalancing for the investor.

All this means that you should ignore alarming headlines, short-term trends in the market, and the talking heads that tell you that they know something that no one else does.

They almost certainly do not.

3. Keep contributing to your retirement accounts (if you have not stopped working)

In your quest to prepare for your best possible future financial outcome, right up there alongside staying invested typically comes the fight to ward of behavioral finance (fear). This means making certain that you always continue to add savings to your retirement accounts.

I understand. When the market hits a prolonged downturn, every bone in your body is screaming for you to find a way to protect your money. But as retirement account savings get deposited pretax, it thereby not only lowers your taxable income for the year, but it also grows tax deferred for the future.

When speaking with clients, I often remind them that the most important job I have is to help keep them from making financial decisions from which they cannot recover. Most, but not all, of these mistakes have to do with something that can negatively influence every single one of us: fear. (Especially the fear of financial loss.)

While the statement above about helping clients not make permanent financial mistakes can cover significant ground, during turbulent markets, and even in the face of a potential recession, the importance of resisting fear is as true now as perhaps ever. And that’s because history shows that the market will recover, and any recession will not last.

With that in mind, let us begin 2023 with a toast to that endearing tortoise of Aesop’s.

¹^{Forget Stock Predictions for Next Year. Focus on the Next Decade. - The New York Times (nytimes.com)}

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¹Barron’s 2024 Top 100 RIA Firms. Barron's© magazine is a trademark of Dow Jones L.P. The ranking of independent advisory companies is based on assets managed by the firms, growth, technology spending, succession planning, and other metrics.

² Retention Rate Source: Allworth Internal Data, FY 2022

³ The NBRI Circle of Excellence Award is bestowed upon NBRI clients meeting one or both of the following criteria: Total Company score at or above the 75th percentile of the NBRI ClearPath Benchmarking Database and/or improvement of five (5) or more benchmarking percentiles in Total Company score over the previous survey.

⁴ As of 7/1/2024, Allworth Financial, an SEC registered investment adviser and AW Securities, a registered broker/dealer have approximately $22.5 billion in total assets under management and administration.

⁵ InvestmentNews 2020 and 2021 Best Places to Work for Financial Advisers. The ranking reflects survey responses and scores completed by both employers and employees. Employers report their organization’s workplace policies, practices, and demographics. Employees complete a survey designed to measure the employee experience.

⁶ 2021 Value of an Advisor Study / Russel Investments

⁷ Ranked 9th Top Wealth Managers By Growth in Assets in the U.S. from RIA Channel, 2022. RIA Database and RIA Channel are registered trademarks owned by Labworks, LLC.

⁸USA Today Best Financial Advisory Firms 2024. The ranking is based on the growth of the companies’ assets under management (AUM) over the short and long term and the number of recommendations they received from clients and peers.

⁹NBRI Best in Class Ethics 2023. The Best in Class level is bestowed upon clients performing at or above 90 percentile of the NBRI ClearPath Benchmarking Database.

^✢ Scott Hanson, Investment Advisor 2005, 25 most influential people in the financial services industry. The ranking reflects 25 people who Investment Advisor magazine believes have had or will have the greatest influence on the financial services industry.

^✼Pat McClain, InvestmentNews 2014, Invest in Others Community Service Award, presented to an advisor who has made an outstanding impact on a community through managerial contributions to a non-profit organization.

^†Financial Times, FT 300 Top Registered Investment Advisers, June 2019. The ranking reflects six areas of consideration including the company's years in existence, industry certifications of key employees, AUM, asset growth, SEC compliance record and online accessibility and calculates a numeric score for each company.

Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™, CFP® (with plaque design) and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board's initial and ongoing certification requirements.