How to Navigate the Recession – 2020 Edition

By Caroline Hwang, CEPF®

Navigating a recession requires an intelligent, fleet-footed strategy to safeguard your money and protect your financial future amid the downturn and uncertainty. Truth be told, no one, including the experts, knows how the economic slowdown amid the coronavirus pandemic is going to play out. That’s largely because we’ve never before had a global pandemic wreak havoc quite like this: conventions, vacations, sports seasons cancelled; restaurants, bars, major retailers closed; certain cities, counties, even countries on lockdown.

For sure, coronavirus has seriously impacted discretionary consumer spending, the engine of the U.S. economy. How long the recovery will take depends on a number of factors, including how soon the spread of infection is contained. As we’ve seen, the Federal Reserve is doing what it can to head off a financial crisis, cutting its benchmark interest rate to zero and announcing it will buy $700 billion in Treasury and mortgage-backed securities. Congress is also working on bills to prop up the economy and provide aid to affected businesses and taxpayers.

Will all these efforts be enough to stop the slowdown from turning into a full-on crisis? Only time will tell, of course. In the meantime, the old advice stands now as ever: hope for the best, but prepare for the worst. Toward that end, SmartAsset has put together this guide to help you make smart financial choices during a recession, including protecting your portfolio, taking advantage of lower mortgage rates and safely parking your cash. Though if you’re looking for personalized help, turning to a financial advisor is likely your wisest move. Our free matching tool will recommend up to three advisors, based on your needs.

It’s only been 11 years since the last recession, but to refresh your memory about how a recession is defined, what happens during one and which tools the government can use to avert or shorten one, read What Is a Recession? If you’re worried that we’re headed for a depression or convinced that this is only a correction, this article on the three different economic stages of a downturn will fill you in on their differences.

Of course, the time to protect your investments from a downturn is well before the downturn. But this article on recession-proofing your portfolio will give you a practical sense of what you may want to do. Now may also be a good time to consider a permanent portfolio, which is a strategy meant to insulate against recessions.

Some people, though, consider declining markets to be buying opportunities. See which investments experts tend to recommend when a recession hits. If you do want to buy on the dips, you’ll need to know about limit orders, put options and trading after hours. The strategy of buying and selling based on the news can be profitable – but also risky. But your 401(k) is like your face right now: Don’t touch it.

If the volatility in the markets is keeping you awake at night, it may be time to hire an investment advisor. Or to switch advisors. Here are 10 questions to ask when interviewing candidates. To help you find local fiduciary financial advisors, use SmartAsset’s pro matching tool. After you answer a handful of questions, we’ll connect you up to three advisors based on your preferences.

Following the Fed’s interest rate cut to zero, mortgage rates are expected to drop, too. Some experts predict as much as 52 basis points (or 0.52%). Should you refinance? Here are five reasons you shouldn’t. Closing costs, which can outweigh any savings for a long time, are also a big consideration. Our refinance calculator can help you find the best rates, while our article about refinancing to a 15-year mortgage can tell you if you should.

With mortgage rates about to come down, it may be a good time to buy (as long as your job situation is stable). You’re likely to get a good price where prices haven’t fully recovered from the last crisis. To find the best mortgage rate, use our comparison tool. If you’re new to homebuying and mortgages, you’ll want to read up on points and mortgage companies.

If you’ve been taking some of your stock gains off the table, you’ll want to park them somewhere safe. This article gives you 10 investment ideas, while you can use our comparison tool to find the best CD rates and read our roundup of the best online high-yield savings accounts. If you’re thinking you want some cash on hand, here’s what you need to know about daily ATM withdrawal limits.

With stores like Apple, Sephora and Starbucks temporarily closed, spontaneous consumption is less of an issue. But buying three-month supplies of toilet paper, water and canned goods can throw off your cash flow. Now, when you’re pretty clear on your needs versus your wants, seize the opportunity to streamline your budget. Our free budget calculator shows how your spending compares to your neighbors’.

Recessions are part of the business cycle – and this one will pass, too. Our study of the top recession-resistant cities may cheer you up – or maybe this one about the top cities for living the American Dream will. For many people, being proactive – or just active – relieves anxiety, because it makes you feel back in control. Now’s as good a time as any to start planning for retirement – or to just go for a long run.

• Talk to at least three candidates. This will give you enough information about fees,  services and investing strategies so you can make your choice with confidence.
• Ask how much liability insurance they have. The right answer should cover how much you plan on putting in the advisor’s hands. So if they say $25,000 per incident and you have $50,000 to invest, that’s not enough coverage.
• Make sure they are fiduciary advisors. If they are, they are legally obligated to work in your interest rather than their own. If they aren’t, they only have to provide suitable recommendations.

Photo credits: ©iStock.com/Sarinyapinngam, ©iStock.com/FatCamera, ©iStock.com/Mikolette

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