What Issues Should You Consider During A Recession Or Market Correction?

This tool helps to slow down your thinking, provides some education, and gives you some practical steps you can take to help ease the uncertainty or anxiety which can accompany a recession or market correction....
David Roberts
August 9, 2022

There have been quite a lot of arguments lately about whether the US is in a recession or not. Regardless of your position on this topic, one thing’s for certain: we are experiencing a market correction. That, coupled with elevated levels of uncertainty about the direction of the economy, rising inflation, global supply chain disruption, gas prices, and expectations of further market volatility, will certainly trigger some amount of anxiety in the minds of folks planning their financial futures. Because of this, many will make changes to their investment portfolio, attempting to avoid the imagined pain of future losses.

Therefore, it’s during times like these, where we should slow down and consider where we are going and whether it’s wise to “fix” our portfolios.

HAVE YOU BEEN TEMPTED TO CHANGE YOUR INVESTMENT PORTFOLIO?

Due to the way our brains are hard-wired, under stress we make reflexive decisions which are fast, intuitive, and emotional. Even though we feel like we’re using good judgement, our decisions are being directed by our biases and long-held beliefs about money. Academic research has shown that when we do this, we are more likely to cause greater harm than good.

We need to engage the rational area – the slower part – of our brains before making big financial decisions. To this end, it helps to have a methodical framework for decision making when we’re stressed. Slowing down the thought process in this way can reduce the likelihood that emotions and irrational thinking will lower the chances of achieving our financial and life goals.

A helpful resource and some tips

That’s why I’m encouraging everyone to download a copy of my checklist, “What Issues Should I Consider During A Recession Or Market Correction?

Click here to download this resource

This financial planning resource was designed to address some useful strategies for when valuations in the markets are low (e.g., Roth conversions and gifting strategies) as well strategies to soften the blow from economic downturns (e.g., cash flow becoming tight). Issues covered in this resource are:

  • Cash flow
  • Assets and Debt
  • Tax planning
  • Long-term planning

This tool helps to slow down your thinking, provides some education, and gives you some practical steps you can take to help ease the uncertainty or anxiety which can accompany a recession or market correction. I know you want to make smart money decisions during turbulent financial times.

Here are some additional steps you can take to slow down and improve your financial decision-making process.

Remember these four “R’s”

R #1: Recognize the Situation

First, take a good look at what’s going on and how you are feeling. Get with someone important to you and talk through all the reasons why you are feeling this way. Look back through your past and see whether there are similar times that could be triggering irrational thoughts or feelings (e.g., the Great Recession from 2007-2009, a big financial mistake, etc.).

Be honest with yourself and determine whether you are thinking clearly or not. Are you capable of making a decision which will keep your financial plan on track, rather than derailing it?

R #2: Reflect on Your Values

Every money decision in life has its ripple effect on the other choices we make, so take a step back and examine your personal values, goals, motivations, and priorities which are the core of your financial plan.

  • Has anything changed?
  • Why would a course correction be required during the current recession or downturn?
  • Are your biases affecting your judgement?

Click here for more about cognitive and emotional biases

R#3: Reframe Your Viewpoint

  • Look at how the markets and economy have responded during similar times in the past.
  • Consider how, over time, the markets have historically rewarded patient and disciplined investors.
  • Even if you are already retired, remember that the long-term investment approach is one of the ways to tilt the odds of success in your favor.

This is the time to look at the opportunities which will help you to get ahead now that valuations are low. My checklist can help.

R#4: Respond Purposefully

Before making any financial decision, carefully consider the advice from someone who has knowledge and experience with these matters. If you are working with a financial professional who knows you deeply and has taken the time to uncover what is truly important to you, they can help you to make smart money decisions which give you the best chance to reach your financial and life goals.

Final thought

Using a financial planning resource like the “What Issues Should I Consider During A Recession Or Market Correction?” checklist, together with the “4 Rs” framework, can help you make decisions that are rational and reflective, rather than emotionally reflexive. Remember to slow things down before you do anything that changes your portfolio or financial plan.

I would like to discuss this resource with you, as well as how I can help you take control of your finances during this turbulent time in our country. Click here to download this resource

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