Recession fear? Shield finances with these steps

If the threat of a recession gives you pause about your personal finances, remember now is a time to prepare, not panic.

Worries about the economy increased last week when a fairly reliable recession warning emerged from the bond market. But without a crystal ball, it remains unclear when a recession might hit. Still, financial experts say people should consider these steps that would particularly help in a downturn. Don’t panic: It is sage advice, said Dan Keady, chief financial planning strategist at TIAA, but it goes against the grain for many people. “The best investment strategy is a longterm one. If you buy and sell your investments frequently, you’ll more likely than not buy and sell based on emotion — panic or excitement.”

If you simply cannot sit still, check your plan.

Are your goals the same? Are your investments where you want them? It makes sense to periodically rebalance your portfolio to ensure your investments have not become too heavily weighted in one segment or another, particularly after a long stock market runup.

Say you started with 60% of your nest egg in stocks and 40% in bonds. The stock portion could have easily jumped to 70% thanks to strong gains in technology sector. Whatever part of your portfolio is in stocks, remember that it can lose 10% or 20% of its value regularly as recessions come and go. That’s the price investors have paid historically for the stronger longterm returns.

Fight the urge to readjust solely based on market conditions. People who sold during the last recession, for example, probably suffered a loss and then missed out on some major stock market gains.

Try not to get too tied up in the ups and downs of the stock market. Even those without money in the market — about half of all U.S. households — might be tempted to see the market’s move as a sign of the times even though it can have little impact on their direct financial wealth. Save up: Build up an emergency fund. These are a great idea anytime, but can become critical in a downturn.

A recession typically comes with job losses, and the fund can be a lifeline. Even those with good job security should take heed as everyone can feel an income pinch during a recession, as companies might eliminate bonuses, reduce overtime or slow pay increases, said Lauren Anastasio, a certified financial planner at SoFi.

Experts recommend setting aside enough to cover three to nine months of basic expenses. But nearly 4 in 10 Americans say they are not confident they would be able to pay an emergency expense of $1,000, according to a recent survey by the Associated PressNORC Center for Public Affairs Research.

So, set aside whatever you can in an account you can readily access. Even in this lowinterestrate environment, there are some savings accounts earning near or above 2%. Pay off debt: This is crucial for highinterest debts, such as credit card balances.

Americans dramatically reduced their debts after the last recession, but those debt levels crept back up. This can be costly as the average interest rate on a credit card is 17.82%, according to Bankrate.

Easing those debts frees up available credit that may be needed in a pinch. Banks tend to tighten lending during recessions, so loans could be harder to get. Make good choices: Consider holding off on any big purchases like a car or home remodeling if it is a stretch, Anastasio suggested. If you are going to need cash in the next few years — say for the birth of a child, a sabbatical or a return to school — make sure that isn’t tied up in something that may lose value.

“I definitely think that it has been long enough (since the last recession) that here are plenty of people who have gotten comfortable with the period of growth and expansion and have forgotten some of the lessons,” she said.