How to protect yourself before a possible recession
Wednesday’s news about the inverted yield curve on bonds and how that’s predicted past recessions sent the investment community in a tizzy.
Economist Kamran Afshar with DeSales University pointed to it as a possible prognosticator affecting the Lehigh Valley economic climate. In his quarterly Business Sentiment Index released Wednesday, he noted the yield curve and trade tensions as affecting stocks, which can lead to a downturn.
On Wednesday, the yield on the 10-year Treasury briefly fell below the two-year yield. Such a thing is rare: Investors usually demand more in interest for tying up their money in longerterm debt. When yields get “inverted,” market watchers say a recession may be a year or two away.
To be clear: A recession is not scheduled to happen this week, this month or even this year. But one is possibly a year or two down the road, economists say.
But if you, like most of us, are an average investor — that is, you save and put your retirement nest egg in the hands of investment advisers — what should you do to protect your investments? We asked and received responses from several Lehigh Valley experts.
David S. Coult, certified financial planner and president of Milestone Financial Associates in Macungie
First: Consider or reconsider your long-term investment plan. The big thing is if you have money invested in stocks that you would need in the next five to seven years, that could be a problem. You could consider selling that stock now. Also, stocks that are more defensive in nature (think reliable, so-called blue chips), such as utilities and pharmaceuticals, tend to perform better during a downturn.
Gene Dickison, owner of MTM Financial Group in Lower Nazareth Township and host of “More Than Money” on radio and television
Check your investment strategy to see if it still fits. If it’s yes, don’t do anything. You ride it down, you ride it back. If it’s not, then realize that investing in the stock market is a dimmer switch, not an on-off switch. You could be 20% in stocks; you don’t need to be 100% or zero. Look carefully at fixed income investments (bonds or short-term certificates of deposit), which will be largely insulated against a downward turn.
Connor J. Darrell, head of investments at Valley National Financial Group, Hanover Township, Northampton County
Have an emergency reserve. We typically recommend keeping about six months of routine living expenses in a money market or savings account, even during times of prosperity. This can help to manage any disruptions to cash flow that may come about from a period of economic weakness.
Danielle Kulnis, vice president of private banking, Peoples Security Bank & Trust
In volatile situations like this, what I typically encourage people is to talk to their financial adviser. Their adviser is in the best position to guide them; they understand their goals. Having somebody alongside of you making decisions, because they can see things you don’t, and that’s what they do for a living.
Other comments from the experts include:
Stay diversified
Stay in the know, but don’t obsess over one day’s doom Don’t panic
Morning Call reporter Anthony Salamone can be reached at 610-820-6694 or asalamone@mcall.com.