Investing During a Recession – What Should Retirees Do?
Inflation is high, interest rates are rising, layoffs have begun at tech companies, and major geopolitical conflict. Is there any good news?
Most investors make mistakes when investing during a recession. Let’s talk about 3 things you can do.
Investing During a Recession – What Should Retirees Do?
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Full transcript:
SPEAKERS
Anthony Saffer 0:00
Wall Street economist says recession in 2023 will look like the biggest crisis of the 1970s. That’s the headline from Yahoo Finance, January 30, 2023. There’s so many things going on, it’s easy to see why you can be concerned. Inflation is sky high. Interest rates are increasing, tech layoffs have begun. And there’s a geopolitical crisis. Is there any good news? Most investors make mistakes when it comes to a recession? Let’s talk about three things you can do. Hey, there, it’s Anthony and Alex with One Degree Advisors, and we help you gain confidence in your retirement. So Alex, a lot of people are concerned over a looming recession, maybe we’re in one, maybe there will be one, maybe there won’t. And a lot of investors took it on the chin when it comes to investments in 2022. So people are wondering, well, what do I do if a recession comes?
Alex Okugawa 0:51
Yeah, first and foremost, it’s important to remember that, although kind of similar, the economy and the stock market are two different things. And I’ll give you a quick analogy, it’s a story I like to use a lot. It’s an analogy of a man walking a dog through a park. And if we think about the man is the economy, and the dog is the stock market, they’re still kind of connected, and they’re connected by a leash, but the dog is gonna do crazy things, right, the dog is gonna sniff a squirrel and it’s gonna go running that way, it’s gonna go running that way, it’s going to bark at some people, it’s gonna go all around. Meanwhile, the man who is the economy has a relatively stable stride, we kind of know where he’s going, and we can see where he’s going. Now, at the end of the day, they both end up in a similar direction. But the dog can do whatever it wants in the meantime. So again, although they are linked, in some ways, they are two different things.
Anthony Saffer 1:41
Okay, so let’s talk about three ways to invest during a recession, this becomes really important number one is to make sure your investments aligned with your timeframe.
Alex Okugawa 1:49
If you don’t need the money, let’s say for a decade, and like you’re still working, falling asset prices, and a falling stock market can be your best friend. As long as you’re still contributing and adding money into your account, it can be a great thing for you to continue to buy more assets at lower prices. Now, if you do need money, you have to be thinking about, Well, how am I going to create income when asset prices are falling? This is what we’re talking about when we say making sure your investments match your time horizon. So for several years, super short term bonds, which are relatively safe and stable. They were paying nothing in terms of a yield or interest. And now you can get some safety. And you can get paid a pretty nice yield, which is a win-win.
Anthony Saffer 2:36
So what about things, physical assets, like gold or real estate?
Alex Okugawa 2:39
Yeah, and this is very popular. So you know, if you’re watching other YouTube videos, you see a lot of people be like, oh, you know, load up on gold, and silver and real estate, all these physical assets. And I think there is a little bit of merit to the things people are saying, but people usually go about this in the wrong way. They ditch their stocks, they ditch their bonds, and then they start loading up on these asset classes, potentially at the wrong time. Right, you probably should have done that earlier. So, the first thing I would say here is it let’s say you own a home, you already own a home, I would assume, especially in southern California, that your piece of real estate makes up a large portion of your net worth, do you really want to be loading up even more on real estate inside of your investment portfolio. I mean, that may not be the best idea for you considering again, that real estate that you own, that you live in, is already such a big part of your net worth. And then the second thing here is just investing based upon gut feelings, or I think this is going to happen. It’s usually a bad idea.
Anthony Saffer 3:42
Yeah. And there’s a lot of fear-mongering that goes on. So you really need to have a plan. That’s why we have a tactical rules-based investment strategy when it comes to real estate and commodities. It takes the emotion out of it, and really relies more on data. All right, the next thing is to do the opposite.
Alex Okugawa 3:58
So there’s this episode of Seinfeld, where George who is, you know, one of the main characters in the show, he’s just down on his luck, right? And so he goes, You know what, I’m gonna do the opposite. So he does the opposite of everything that you would normally do. Like, he’d normally get a tuna on rye and he gets I forget, like a salmon or whatever like that. So the complete opposite, he ends up getting a date with a beautiful woman. The key point here is that when we’re in a recession, what do most people want to do, they want to hunker down, they want to load up on cash, and they want to get super defensive. And sometimes one of the best things that we can do is do the opposite of what we think might be the best. So instead of getting super defensive, if you do have some excess cash, that might actually be one of the best times to deploy that cash. Now, again, I’m not saying that we’ve hit the bottom of the market and things are gonna go straight up from here, but people always look back and they’ll go back to let’s say, March of 2020, during the COVID lows or, you know, in prior recessions, when the stock market was down quite a bit Everyone wants to look at those charts and say, Oh man, if I only invested $10,000 in the market at that time, you know how much my money would be worth today. Hindsight is 20-20, the second we’re in a rough time like we are now, nobody wants to invest. Everyone wants to get super defensive. So sometimes the best advice might be like George do the opposite.
Anthony Saffer 5:19
Yeah, and recessions aren’t fun. I mean, they can be scary, but they are a normal part of the business cycle. And a lot of times people look at this and they go, Well, this would be the first recession that I have while I’m in retirement, or maybe I’m getting serious about retiring in the near future, should I be approaching it differently and that’s not always the case. Having a plan is really important. And we created a video three retirement withdrawal strategies. This can really help with a retirement income and overall investment planning. We’ll go ahead and post that up here. If you’d like to learn more about how we can help you gain confidence in your retirement, go to onedegreeadvisors.com/getstarted/
Transcribed by https://otter.ai
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This does not constitute an investment recommendation. Investing involves risk. Past performance is no guarantee of future results. Consult your financial advisor for what is appropriate for you. Disclosures: https://onedegreeadvisors.com/solutions/#disclosures
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