If you’ve been keeping up with the news, it’s impossible to avoid the triggering word of the month: recession. With so many factors weighing down the economy, the risk of recession, however mild, is creating increasing investor uncertainty, anxiety, and paralysis. In light of the current negativity, below is a guide to successful long-term investing in the face of economic weakness and negative headlines.
How To Invest
When investing for the long-term, consider the following actions:
- Maintain and “right-size” your Emergency Reserve: set aside an appropriate household reserve consistent with your specific needs in a short-term checking/savings account.
- If you’re a physician, tenured professor, or have a secured and perhaps even guaranteed source of cash flow, you can likely afford a minimal reserve (equal to 2-3 months of household expenses).
- On the other hand if your income is less-than-predictable and/or you have intermediate financial goals on the horizon (ie., buying a house, leaving your job), maintaining a much larger cash reserve is wise. What you’re trying to avoid here is disrupting your long-term investment strategy in the event of an unexpected emergency or opportunity.
- Embrace and Take Advantage of the Volatility: Buy low, invest with a long-term view in mind, look at negativity as an opportunity to acquire wonderful assets at discounted prices. All things being equal, you’d rather buy beachfront property in Malibu when prices are low. The same can be said about dominant blue-chip equities.
- Invest Smartly: Invest in well-managed companies you truly understand and believe in, which feature durable cash flow, low debt levels, and pristine balance sheets.
- Rebalance Your Portfolio: Rebalance your portfolio to ensure that you stay on track with your investment strategy, regardless of what the market does. Unless you’re adding cash on a regular basis, this may mean trimming your winners when prices are high and buying more shares of quality long-term investments that may be temporarily out-of-favor for one reason or another.
- Ignore the headlines. As Warren Buffet has stated, the market is there to serve you not to instruct you.
“The stock market is there to serve you and not to instruct you.”
–Warren Buffett. May 5th, 1997 at the Berkshire Hathaway Annual Shareholder Meeting
- If you invest in a long-term growth oriented strategy and follow the steps above, you may not need to concern yourself too much about the day-to-day or month-to-month negativity that the media will seek to highlight during periods of economic stress. Don’t let the market and negative headlines compel you into taking action. Remain proactive and disciplined according to your strategy and when necessary go into the market to buy at advantageous prices.
- Consider that history has shown us that after periods of downturns in the market, a recovery follows (as pictured below). Disclosure: “Past performance is not indicative of future results”.
Key Take-Aways
- Stay Invested
- Stay Prepared
- Stay Diversified
Despite the latest negative investment environment, consider that economic activity is cyclical. Presently, consumer spending has held up so far in 2022, labor market conditions are strong, and despite a noticeable slowdown, overall housing market activity remains positive.
Amidst all of the turbulence, remember to stay the course and continue to save and invest according to your unique growth strategy.
The information contained herein is intended to be used for educational purposes only and is not exhaustive. Diversification and/or any strategy that may be discussed does not guarantee against investment losses but are intended to help manage risk and return. If applicable, historical discussions and/or opinions are not predictive of future events. The content is presented in good faith and has been drawn from sources believed to be reliable. The content is not intended to be legal, tax or financial advice. Please consult a legal, tax or financial professional for information specific to your individual situation.