If you’ve paid any attention at all to the news lately, you probably have some idea about the fact that the American economy is either already in a recession or possibly sliding towards one, depending on who you ask. Understandably, this is very worrying to many people, who are concerned about both the health of the companies they work for and for the state of their investments, including retirement accounts. While a little bit of worry can’t hurt, it’s important not to get too worked up about the economy as it moves through its cycles — and financial services firm Vanguard has a few particular reasons why you should not worry too much.
For more help navigating the potential recession and with more general financial planning, consider working with a financial advisor.
Reason 1 Not to Worry About a Recession: Stocks Bounce Back Before It’s Over
While the market does tend to tumble during a recession, stock prices generally start to spike before the recession actually ends, according to Vanguard.
“Over the last half century, the earliest recessionary recovery in stocks began just two months into the brief economic downturn of 2020,” Vanguard’s release reads. “The latest recovery started 16 months into the recession of 2007–2009.”
This means that even if you are worried about how long the recession will last, your portfolio may not end up suffering for as long as you think. If you are patient and stay invested during the downtime, you’ll be rewarded by seeing your portfolio rebound while other parts of the economy are still recovering.
Reason 2 Not to Worry About a Recession: They Don’t Last That Long
If you’re investing, chances are you’re all about the long-term. You might be saving for retirement, or to buy a new house in a few years. Either way, the time horizon for your investment strategy is likely still a ways in the distance.
A recession is highly unlikely to last that long.
Vanguard’s data shows that the last seven recessions ranged from just two months to around 18 months. For most investors, that is significantly shorter than the length of their overall financial plan. In fact, if you’re a relatively young person saving for retirement, it is highly unlikely that this will be the last recession you have to navigate before you approach the horizon of your savings window.
If you do have a more pressing timeline, you should talk to your financial advisor about how to proceed and possibly consider adjusting your timeline to make the most of the cycle.
Reason 3 Not to Worry About a Recession: Nothing in Investing is Certain
Investing is all about the unknown. The government, economists and even financial advisors are only making educated guesses about what is going to happen.
In fact, Vanguard notes that an economy can technically end before the National Bureau of Economic Research officially declares it to have happened.
The point to take, then, is that while a recession sounds scary there is no guarantee that any of the bad things that tend to be associated with a recession are going to happen.
The Bottom Line
We may be in a recession already, or one may be rapidly approaching. While that can send some investors into a panic, you shouldn’t worry too much, according to Vanguard. The fact is that recessions don’t tend to last that long, and stocks will often rebound before it even officially ends. Plus, investing is all about uncertainty, and no one can predict what is coming with any degree of certainty.
Tips for Navigating the Recession
- A financial advisor can help you make the right investment choices during this period. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- Look for safe investments while the market is volatile. Parking some of your money in a certificate of deposit is a low-risk move that still nets more interest than a savings account.
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