Shalom friends!
Daylight savings is in full swing, and with it took any semblance of my adequate mental health. (Whoever deemed it appropriate to be plunged into darkness by 4:30pm should be arrested).
And to continue harping on bad things, this past week I’ve been hearing adorable little murmurings of phrases such as:
“Meta is cutting 11,000 jobs, Amazon is firing 10,000 people, and Musk fired half of Twitter’s employee base.”
“Canada’s recession is arriving earlier than expected.”
Another version, “Canada’s recession expected in early 2023.”
In a press conference for his new film, Timothée Chalamet said “I think it’s tough to be alive now. I think societal collapse is in the air—or it smells like it.”
And at my local coffee shop the blonde girl on the phone in front of me, “I like literally can’t handle a recession right now.”
Don’t you just love when people pass along their anxiety attack? If you’re not also trapped in this foggy apocalyptic nightmare, I recommend you exit stage left and carry on with your life – ignorance is bliss. But if you’ve also been feeling inevitable “impending doom”, I suggest you read on. I am going to try, financially speaking, to help put your mind at ease.
As for your mental health, I have very little to offer – take a CBD gummy, eat mac & cheese, call your therapist. And probably call your mother, depending on the state of that relationship.
Stop, drop, panic. How people are responding to the recession.
There is nothing worse than looking at your investment account to see that what was once $10,000 is now $1000. As concerns about impending recession spread, many people are pulling their investments out of the market with the idea that they’ll wade back in when conditions are right.
The Financial Post released an article last week corroborating that sentiment, titled:
Posthaste: Millions of Canadians are losing confidence in the stock market and plan to cash out
The article started with the comforting words, “It’s ugly out there”, and continued on to say that “the market right now is going through a crisis of confidence.” That position was reflected in a new survey by personal finance site Finder which found…
- 24% of Canadians have no confidence in the stock market and plan to cash out this year.
- In other words, 7.5 million Canadians are ready to cut their losses.
“Based on our data, we see that one in four Canadians are looking to minimize their market losses by cashing out in 2022. This could turn into a really big problem,” – Romana King, senior finance editor with Finder.
Moving on from doom and gloom.
Regardless of a recession on the horizon, dwelling on dire economic news distracts us from focusing on the steady, long-term outlook which can ultimately make an investment plan successful. That is the smartest thing I’ll say all day.
What is a recession?
Probably should’ve started with this.
For the university class definition: “A recession is officially judged as two consecutive quarters of negative economic growth. During this period, which can last anywhere from months to years, unemployment tends to rise quickly, and retail sales fall sharply. Recessions are a natural part of how an economy works as it expands and contracts”.
What are common causes of a recession?
This doesn’t seem like rocket science to put two and two together. Obviously, a sudden economic shock such as a global pandemic shakes things up a bit (which is the lovely catalyst for this 2022/23 saga). Some of the other main causes of a recession include but are probably not limited to:
- Excessive debt leading to defaults and bankruptcies
- Asset bubbles, such as inflated stock markets or real estate markets (The Big Short anyone?)
- Too much inflation or too much deflation
- Technological change which impacts entire categories of jobs
What do I do when a recession happens?
I would never leave you depressed on a Monday, so here’s the optimistic news. After every recession so far, there has been an economic expansion that has more than made up for the previous declines.
Don’t take my word for it (I will never stop reiterating that I am unqualified to be giving financial advice) …But from 1962 to this year, Canada has survived 4 recessions and every single time the economy has come back with strong growth. Finance people who know more than I do say that market dips can be a great opportunity to get your investment strategy in check.
Goldman Sachs Group Inc. slashed its year-end S&P 500 target by 700 points to 3,600 last week, and Bank of America Corp. suggests it could go even lower…
Michael Hartnett, who is a Chief Global Equity Strategist (whatever the hell that means) argued with a mildly creepy metaphor to “nibble at 3,600 SPX, bite at 3,300, gorge at 3000.”
All this to say, if given the means, a market downturn can act as an opportunity for investors to buy, or rather, gorge.
What happens to my investments during a recession?
Don’t mind me but I am about to sound like a coach in a discount version of Friday Night Lights.
Think about your investments this way:
A traffic delay can ruin your morning, but if you pull over, you’ll never reach your destination. In the same way, market downturns can become meaningless during a lifetime of investing, provided you stay on the journey.
Always being invested means you can benefit from the power of compound growth over decades. Investing can be a life-long pursuit, but you can’t win when you stay on the sidelines.
How to recession-proof yourself
Here are some of the things you can do to protect your finances ahead of a recession:
- Avoid credit card debt, since such debts will be much more expensive in a recession when budgets are tight.
- Build your savings to have an emergency fund to cover periods of income disruption.
- As wall art in a middle America bathroom would say, “keep calm and carry on”. Don’t let your emotions get the best of you when it comes to your investments. Sit back with a glass of wine and ride out this depressing wave.
Until the next.
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