Your action plan for a bear market and/or recession

First, two definitions:

Bear market – From www.investopedia.com A bear market is a condition in which securities prices fall 20% or more from recent highs amid widespread pessimism and negative investor sentiment. We are about 5% away from that at the moment.

Global recession – From www.investopedia.com A global recession is an extended period of economic decline around the world.  The International Monetary Fund requires that the drop in global economic output must coincide with a weakening of other indicators such as employment, trade, and capital spending and flows, typically over two successive quarters (6 months).

Bear markets are typically a response to a global or local recession. There is a growing likelihood that changing consumer and corporate spending will lead to a broad based global recession.

Here is your action plan:

If you are working (not yet retired)

Build up emergency savings

• During recessions some corporations, large and small, reduce or eliminate annual bonuses.  If your day to day lifestyle relies on receiving a bonus, it’s time for a new personal budget.  Your day to day lifestyle expenses, savings (long term and short term), and debt repayment should not be dependent on an annual, discretionary bonus. If it does, it’s time to review your personal budget and identify areas of spending that can be curtailed or eliminated for the time being.

Ask your company how you can help

At times like this, it’s best to be viewed as an employee that adds value to the organization versus one who represents a cost without obvious revenue generating impact.  Here are some ways you can be a leader regardless of your role in the organization:

• If economic response committees are being set up, ask to volunteer.
• Organize cross-training within your department in the event that one or more team members have to stay home due to their own illness or that of a family member.
• Share any operational cost saving ideas you have with your manager.  They might be open to your ideas now more than usual.
• If you are in sales, prepare to work harder than you have since the last recession 10 years ago.  Your company needs you now more than ever and you can define your career during times like this.
• If you provide an essential service to your organization, request work-at-home technology so you can deliver results remotely if necessary.
  

Keep investing

Continue with your regular retirement savings, 10 years from now (and likely sooner), you’ll be glad you did.

If you are approaching retirement

Have a comprehensive plan

If you don’t already have a financial plan it’s time to get one.  It will confirm how well positioned you are for retirement and provide an action plan to optimize your financial strength in the short and long term.

Know your required rate of return to meet your goals

In our experience, the investors that invest over aggressively do so for three main reasons:

• They don’t know if a more conservative approach will be sufficient for their needs and invest for maximum growth without enough consideration for the impact a bear market can have on their portfolio and their investment mindset.
  
• They didn’t want to miss out on the great equity market gains and took on more risk than appropriate for them.
  
• They have a growth mindset and are comfortable with stock market volatility and act opportunistically through market declines while diversifying responsibly.
  

Wondering how to find out what your required rate of return is? A comprehensive financial plan will answer this question.  It may sound self-serving coming from a financial planner, but it’s the truth.

Understand that your retirement date is not the end of your investment time horizon.

Your investments need to generate returns for you for the rest of your investing life, so equity exposure may be necessary to ensure that your money grows at a higher rate than inflation over the long term.The key is to have enough fixed income (bonds/cash), to support your cash flow needs for the first five years of retirement.This ensures that you are not forced to sell quality equity funds or ETFs when their prices are at a cyclical low.

If you are recently retired and living off of your investments to some degree

• Ensure that you are withdrawing from the fixed income component of your portfolio through the market decline and until a solid recovery occurs.  You don’t want to be selling through a bear market because your portfolio won’t benefit sufficiently from the ultimate recovery.
• Consider deferring sizeable capital purchases if such spending requires that you sell equity funds or ETFs this time.

If you’re a small business owner

• Update your business plan and financial forecasts to reflect recent developments.  If you don’t have either, start by building both. Start with the financial forecast as that will be more pressing if revenue declines.
  
• Communicate with your staff.  They may have concerns about how a recession will impact the company and their jobs.  Put them at ease if you can and highlight what they can do to support the company during challenging times.
  
• Communicate with your customers. Let them know how you are addressing major events in your organization and pre-emptively address their concerns.

If you are a human being

• Stay calm.  Panic and fear are the parents of all bad decisions.
  
• Choose your information sources carefully. Rely on major quality news organizations and professionals who have earned your trust for information. 
  
• If you have a financial advisor and they are not communicating with you proactively and/or you don’t have confidence in their advice, start looking for a new advisor. This article and this article provide useful suggestions on how to optimize your search.

• Acknowledge that 10 years from now you will look back at the market decline of 2020-(2021?) and recognize the investment opportunity that it was.

Stay cool, stay focussed, take action in areas that you can control.