Preparing for a Recession? Avoid These 6 Money Mistakes
Preparing for a Recession? Avoid These 6 Money Mistakes
Nicole Spector Sun, September 15, GOBankingRates
There’s been a lot of chatter in recent months that a recession could be about to hit the U.S. economy. Experts are divided on whether or not that will happen, but keep in mind, nobody — not even top global economists — can predict a recession with 100% accuracy.
“Believing that one can predict when a recession is going to occur and how that recession will affect one’s finances is fool’s gold,” said Robert R. Johnson, Ph.D., CFA, CAIA, professor of finance at Heider College of Business, Creighton University.
Not being able to predict a recession is even more reason you should always be prepared for one, as one can strike seemingly out of nowhere — just look at what happened during the onset of the COVID-19 pandemic. If you’re getting your finances ready to survive and thrive during a recession, avoid these six money mistakes.
Not Being Mentally Ready and Thinking Short-Term With Investments
One of the most significant challenges to having financial success in investing exists in your mind. We tend to take financial losses pretty personally and think more about what we’ve lost than what we can or could gain.
“The biggest hurdle to long term success in investing is mental,” Johnson said. “Research has shown that we suffer losses at a much higher rate than we savor gains. Baseball philosopher Yogi Berra once said, ‘Baseball is 90% mental. The other half is physical.'”
It’s worthwhile to also think of investing as being 90% mental.
“When stock markets decline, often during recessions, people have a knee jerk reaction to ‘sell out of stocks’ and take on a risk-off strategy,” Johnson said. “The problem with that philosophy is that one has to make a series of good decisions — when to get out in advance of the recession and when to get back in when the recession is over. And, they end up ‘selling low and buying high.'”
But when you “derisk” your portfolio, you’re also robbing yourself of opportunities that will inevitably open up when the stock market rebounds, as it always does.
“Prepare yourself mentally for the ups and downs of the stock market,” Johnson said.
Not Having an Emergency Fund
It’s always bad to not have an emergency fund, but it’s downright disastrous to not have one when bracing for an economic downturn that could disrupt your financial well being.
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