Keith’s Thoughts on Preparing for Recessions:
I wanted to take some time to share some thoughts on recessions since the media and the "talking heads" keep beating the drum louder and louder of a possible recession. First, they are correct, we will have a recession, BUT don't let any of them fool you into thinking anyone can accurately predict when a recession and impending market downturn will happen. Throughout history, typically when all of the indicators align, that would somewhat accurately predict a recession on the horizon.
It has taken months or even a couple of years before a meaningful downturn has occurred... in my opinion, all of the stars have not aligned just yet for an ominous warning to be issued...although some of those indicators are too close to call one way or the other.
I've now been in this industry working with clients for two decades, and together we have witnessed, survived, and ultimately prospered through many downturns in markets, recessions, chaotic world
events, etc. I have a hunch, unless the world ends, we will again survive and prosper. I know we are likely “preaching to the choir” with our clients as most of you have been through many challenging time periods throughout your lives and have put in practice over the years many of my thoughts mentioned below. However, no matter how “seasoned” we may be, a refresher can never hurt, and maybe this could be of use to share with a child, grandchild, colleague, or friend that doesn’t yet have the benefit of years of experience of ups and downs, hard knocks, etc.
Soooooo... what can individuals and business owner/entrepreneurs do now to help ensure the future viability of their financial situation, businesses, etc.
1) Prepare for the worst and hope for the best:
Don't overthink everything, panic or get too emotional. DISCLAIMER: yours truly has dealt with these emotions and had to put them in check from time to time as well... It is our human nature to sometimes worry and make a mountain out of a mole hill. You can easily prepare for the worst by thinking through financial decisions, purchases and taking the time to put those actions in context with your current financial situation before you act on any impulses during good times. DON’T BUY DUMB STUFF YOU
DON’T NEED OR HAVE TO HAVE IF YOU ARE CONCERNED ABOUT A RECESSION IN THE NEAR FUTURE.
2) Don't get too emotional about your money in the moment:
None of us tend to make good decisions when we are emotional or under duress ESPECIALLY with our money and future!!! The key here is not to turn our head and ignore things going on around us but
rather make sure that we are being prudent and sticking with our financial and investment plan to accomplish our long-term goals like retirement, sending a child to college, being able to travel etc. when
necessary we will prune risk in the portfolio and take a more cautious approach BUT we want to make sure that we don't panic and make any impulsive short term decision that may derail our goals and dreams down the road.
3) Build up some dry powder in the keg:
During prolonged recessions and market downturns nothing is more important than having adequate liquidity. The only way that I know of to accomplish this is to set back ready cash when times are good
LIKE NOW. Remember times aren't always good and at certain points in our lives we are going to have setbacks financially, emotionally, etc.
SOMETIMES CASH IS KING
it's probably fairly obvious but I will list below in my experience personally and working with client’s what cash can provide during times of uncertainty:
First what will it not accomplish: in today's environment it will earn you next to nothing in interest... But that is OK, it's not supposed to make you money it's supposed to provide security, liquidity and
opportunity in times of uncertainty to help you avoid having to make other costly financial mistakes because of the lack of liquidity/cash.
* Cash provides security and emotional stability in times of uncertainty... this is very important especially if you own a business or perhaps you are in a sales position, or maybe you've been fortunate enough to be entrusted with the management of people’s financial lives/futures. Why have I found this to be so important for these types of situations? When you have cash/liquidity you have financial and emotional stability in these uncertain times which not only allows a business owner to continue operations or even grow their business, but more importantly it allows you to act with confidence, conviction and to always act in your clients/customers best interest because of the confidence in your own financial situation. I've found that you can't adequately help people (I.e. your customers) if you haven't first helped yourself. I equate it to the pre-flight announcement when the flight attendant explains to put your oxygen mask on first and then assist anyone next to you with their oxygen mask. Preparation is key.
* Cash/liquidity keeps you from having to tap your retirement accounts... In my two decades in this business, this is one of the most unfortunate and costly things that I have witnessed. It breaks our client’s morale & heart to have to withdraw their life savings, and as their advisor it breaks my heart as well, because I'm fully invested in my client’s situation and lives, and I can feel their pain as well. Taking a withdrawal from a retirement account is the single most expensive “strategy” out there when you calculate the years of lost compounding interest/growth, taxes, penalties etc.
* Lastly, if you've prepared for the worst, and the storm begins to subside, you may have more than a sufficient amount of cash on hand... cash equals opportunity. Because you planned ahead, you may now have the opportunity to buy at steep discounts what others are forced to sell. Opportunities may present themselves in many different ways... Good companies/investments possibly selling at 25 to 50% off, commercial and residential investment properties that people may have purchased with leverage when things were frothy, land, and maybe even a great business you would like to own that someone is forced to liquidate or perhaps wants to sell because they are retirement age and don't want to deal with it during difficult times anymore.
4) RELAX Take a deep breath (I will be doing my very best to practice this as well) ... this too shall pass.
As always, we are going to be here to listen to your concerns, answer your questions, guide you through any storms, and to the very best of our human abilities, take care of you and your financial
situation/money that you have so graciously entrusted us to manage. Also, please remember we are not psychics, and despite how hard we try, we cannot always know what’s keeping you up at night, or hurting your stomach...please...please...please let us know anytime you have concerns, worries, or questions! You can always be candid and to the point with us. You will not hurt our feelings...let us know what you’re feeling, so we can understand and address any issues or concerns immediately.
I greatly appreciate your friendship, trust, confidence, and business!
At Your Service,
The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Keith Holsten and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct.
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