How to Avoid Financial Panic When a Recession Looms

There is nothing wrong with worrying about a potential recession. The unknown is scary. But don’t let these emotions lead you to financial panic.

You’re not the only one feeling anxious — more Americans are worried about a looming recession than in years. According to the Allianz Life Insurance Company of North America’s Second Quarter 2022 Quarterly Market Perceptions Survey, two-thirds of Americans (66%) say they expect a major recession to be imminent. This time last year, less than half (48%) were worried about a recession.

The concern over a potential economic slowdown makes sense. Recessions are periods of significant decline in general economic activity that are part of the regular business cycle. What’s hard is that we often don’t realize we’re in one until it’s in full swing. And, we never know how long the decline will last or how badly our investments will fall.

Every recession is different. The housing crisis of 2008 was completely different from the COVID-19 recession of 2020. If we are in or fall into a recession now, it will also be unique, with the stock market falling into bear territory and inflation at historic lows. , but unemployment, so far, still historically low.

Many people are looking for advice on how to prepare for or weather another recession, especially in this time of record inflation. Changing your spending habits could help you in the short term. The cost of goods has gone up, so cutting expenses where you can would help your bottom line right now. But, less eating out and more at home, or buying generic products instead of branded products will not give you long-term financial security.

Although we often focus on short-term needs during times of economic decline, it’s important to take a long-term view of your finances, especially when it comes to things like planning for retirement. Take measured steps now to help you create a secure financial strategy for your retirement, even when – or perhaps especially when – your retirement is years away.

Here are some ways to prevent your worries about a recession from leading to panic.

Review your financial strategy

When financial factors beyond your control start to play with your emotions, it’s time to revisit your written financial plan and stick to it. Ideally, you should have a written, detailed financial plan to consult that was created with the support of a financial professional who provides for contingencies during stressful times like these. If you don’t, the best time to create one is now.

A good financial plan will have addressed the potential risks of a retirement strategy such as inflation, a market downturn or a recession. Remembering the work you’ve done to create this plan will help keep you reassured during these uncertain times.

You may revisit your financial plan and realize that it may no longer be working for you. Maybe your financial situation has changed with a promotion at work or the kids have graduated from college. Or your risk tolerance has changed. As people get closer to retirement, they generally adopt financial strategies that involve less risk. If so, consult a financial professional on how to rework your strategies based on your current financial situation and goals. Above all, talk to them before making any changes to your investments.

stay the course

If you intended or currently participate in your employer-sponsored 401(k) account, continue to do so. Do not bail out in the market. Although the market may seem risky, simply not investing and keeping money aside is also risky and is almost a guaranteed way to lose purchasing power due to the rising cost of living. with today’s record inflation.

Money left out of the market, even in volatile times, doesn’t work for you. Although money held in cash is not subject to potential market declines, it will also miss opportunities for gains when the market recovers. Trying to time exactly when the market will rebound is a doomed method.

Yet people are increasingly saying they keep cash on hand. In the latest Allianz study, 65% of respondents said they keep more money than they should out of the market due to fears of loss. That’s up from 57% in 2021 and 54% in the fourth quarter of 2020. I’ve often heard that the market is the only place no one wants to buy when prices are low – only when they are high – and this mentality can hamper your chances of having a comfortable financial future.

At the same time, it’s important to remember to put money aside for an emergency or bad weather fund. A substantial emergency fund will provide a crucial cushion for unexpected expenses, job loss or other costs. A good goal is to have six months of cash saved expenses.

Protect assets from market risks

Risk mitigation is part of a sound financial strategy. If you’re like most people, you’re looking to hedge your bets and protect yourself from market risk. The majority of survey respondents (60%) said they thought it was important to have some loss-proof retirement savings.

Nothing is certain, but there are ways to reduce your exposure to risk. This is especially important as you prepare for and enter retreat. Now might be a good time to add a guaranteed source of lifetime income like an annuity to your portfolio. If you’re more concerned with helping to reduce risk, there are investments such as buffered exchange-traded funds (ETFs), fixed indexed annuities (FIAs), and registered indexed annuities (RIAs) that offer some risk mitigation. losses while providing potential growth.

Your retirement strategy is long-term

Keep in mind the big picture and the long term vision. It’s not about timing the market, it’s time in the market. Your retirement investment account balances may be lower than they were earlier this year. But, you haven’t actually lost any money. You only recognize the loss if you sell and collect.

Historically, the market has always rebounded, and while past performance is no guarantee of future performance, it can provide some context for future actions. If you continue to invest now, you can enter the market at a lower initial investment and potentially enjoy gains when the market improves.

Talk to a finance professional

I can’t stress this enough – so I’m going to repeat myself. If you are considering changing your financial strategy, consult a financial professional first. Advice from a financial professional can help you avoid making ill-informed and ill-informed adjustments to your portfolio that could jeopardize your retirement security.

*Allianz Life conducted an online survey, the Q2 2022 Quarterly Market Perceptions Study in June 2022 with a nationally representative sample of 1,004 respondents aged 18 and over.

Allianz Life Insurance Company of North America does not provide financial planning services.
Coverage is backed by the financial strength and claims-paying ability of Allianz Life Insurance Company of North America (Allianz). The variable annuity guarantees do not apply to the performance of the variable sub-accounts, which will fluctuate according to market conditions.
Products are issued by Allianz Life Insurance Company of North America (Allianz) and distributed by its subsidiary, Allianz Life Financial Services, LLC, Member FINRA, 5701 Golden Hills Drive, Minneapolis, MN 55416-1297. 800.542.5427

Vice President, Advanced Markets, Allianz Life

Kelly LaVigne is Vice President of Advanced Markets for Allianz Life Insurance Co., where he is responsible for developing programs that help financial professionals serve clients with retirement, estate planning and tax strategies.

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