June 13th marked the ten-year anniversary of the end of The Great Recession on May 31, 2009 - and broke the long-standing record as the longest economic expansion in US history. So, what does that mean? Are we headed for a recession? Should you sell out of your investments, or….?
In the words of our own CFA, Aaron Kennedy, “We will have a recession. It may be tomorrow or in ten years, but we will have a recession.” Recessions are inevitable. They are simply part of the basic economic cycle:
- Economic Expansion (Recovery and Growth)
- Economic Peak (The top)
- Economic Contraction (Recession)
- Economic Trough (The bottom)
The looming question, then, is “When?” If you sell your investments and a recession begins tomorrow, you might win and win big. If you sell your investments and a recession doesn’t begin for a year, two years, three, four or more… you could lose, and lose big. Frankly, that sounds a little too much like Vegas for your retirement money.
Well okay, what do you do if you don’t want to gamble? As we have said many times over - investing is all about discipline and sticking to the fundamentals. Our experiences have taught us to be comfortable with our disciplines. So consider the wisdom behind these three thoughts.
#1…Examine the economics…Understand where we are in the cycle, look at the leading economic indicators and the geo political environment that would affect volatility or other measures. There is no doubt we are in an expansion and possibly nearing the peak. There is no doubt that there are geo political concerns that could influence your portfolio positions. After all, these concerns are relentlessly lambasted on every news source out there. However, there are positive political influences you don’t always hear about as often, such as the Fed talking about cutting back rates. Do your research and don’t depend on the media. Remember, numbers don’t often lie. Most of the leading economic indicators are pointing North. The Conference Board Leading Economic Index® (LEI) for the U.S. remained unchanged in May and the index points to moderation in growth toward year end.1.
#2…Position your portfolio both for the times and for you…It isn’t important to just make sure your portfolio is positioned for the current economic climate. Don’t get me wrong, active management is key to weathering volatility, but there are definitely things you may want to own at different times in the economic cycle. However, it is equally if not more important to make sure your portfolio is positioned for your unique situation. What is your current situation, your future and goals, family dynamics and feelings about risk and volatility? Do you need to secure income to weather a possible recession? What are the “what ifs” that could unnecessarily cost you if the market went down and you were forced to sell? Position your portfolio to be ready for this at all times. After The Great Recession, we wrote a special report on how to do this. Because 2019 marks a significant anniversary in investor history, it might be a good time to refresh yourself on where your exposure may lie. You can read it here.
#3…Invest without emotion…There are two things that kill investment returns—the Fed and your emotions. We can’t control the Fed, but you can take steps now to remain disciplined when your emotions get out of control. We all know we should buy low and sell high, yet hardly anyone does it. Why? Fear and Greed. You and I - and anyone else with a pulse - need to have a system in place to help check our emotions before we hit that buy or sell button, and especially before another recession hits. Otherwise, nothing else matters. Don’t gamble with your future. Your emotions can devastate it, or worse, devastate your family.
Whether a recession is near or not, you need to be ready for one. Take advantage of our S.O.S. (Second Opinion Service) this month and to find out if you are.
1. https://www.conference-board.org/data/bcicountry.cfm?cid=1