The Conference Board predicts with 96% confidence that the US economy will enter a recession in 2023.
That scenario has Americans worried about their financial prospects next year. A recent poll shows that more than two-thirds (69%) of US adults are worried about an impending recession, with 41% saying they are “unprepared” for tough economic times.
The good news. Financial experts say there are steps you can take to mitigate the effects of a nasty downturn. But you will have to work for it.
“Let’s face it, most of us are stuck in a rut, living day-to-day and paycheck-to-paycheck without a plan,” says professional stock market trader Thomas Cralow. After all, Steve Jobs never said. “Well, let’s figure it out and see where it takes us,” when Apple invented the iPhone.
“To achieve something big, you have to have a plan and stick to it,” Kralo added.
Six financial moves to make now before the recession hits
To go big and beat the 23 slump, financial experts recommend taking these steps, and the sooner the better.
Create a plan to fight the recession. Build a defensive financial plan, but not just any plan, Kralov said. “Just listing your wishes is not worth it,” he noted. “Any plan should include the following.”
· Your current position
· Your long-term goals
· Realistic short-term milestones
· An assessment of your current skills and capabilities, and what you need to add to achieve your goals
“Once you have your plan, be sure to check in regularly to make sure you’re moving in the right direction,” added Cralow.
Stop buying things you can’t afford. More than 3 in 5 Americans (61%) have a credit card, and the average balance in 2022 is $6,194. Add in deferred payments using buy-now-pay-later schemes that further bury consumers in debt, and that debt becomes a problem.
“Stop trying to impress, stop comparing yourself to others, and stop buying things you can’t afford,” advises Kralov. “Apart from the bank executives profiting from your debt, no one really cares about your frivolous purchases.”
Minimize food costs According to the US Bureau of Labor Statistics, inflation has driven food prices up sharply, rising 7.7% as of October 2022.
“When looking to save, buy as you need to avoid perishable waste, but also buy on sale,” says Keith Cheeseman, vice president of customer success at DailyPay.
“Sign up for your supermarket’s rewards program and browse their weekly catalog for coupons and deals.”
Buy in bulk when you can. “It’s a great way to reduce the cost of essential goods,” Cheeseman said.
Diversify your income streams. Many companies are laying off employees, and this trend is likely to continue during the recession. To protect yourself from an unpleasant situation, explore ways to supplement your income.
“You don’t need two full-time jobs,” Cralo said. “Instead, consider starting a pet-related project, take on some freelance work, invest, consult, or share your knowledge online. This is where adding new skills and knowledge to your toolbox really comes into focus.”
Focus your portfolio on reliable consumer stocks. The good news for investors is that several successive and modest rate hikes are largely expected and priced into markets.
“The bigger concern for equities in 2023 is undoubtedly the slowdown in Fed-engineered growth, which is likely to lead to downward revisions to earnings and/or earnings misses,” said Reed Hartman, chief economist at Global Predictions.
The safest stocks to own in the new year are sectors such as consumer staples, utilities and health care, Hartman said.
“There will likely be opportunities to turn to recovery-oriented stocks at reasonable prices (such as categories such as consumer discretionary, industrials and real estate) later in the year after earnings expectations come down and prices moderate fully,” he said. “Investors should also feel more comfortable holding bonds as interest rates rise.”
Go the fractional route. Households seeking recession-proof investments should consider fractional ownership of historically high-yielding “real” assets/alternative investments such as real estate, fine art, farmland, and franchises.
“Fractional shares have long been popular among the 1% but have only recently become available to retail investors,” said Franshares CEO Kenny Rose. “There’s a reason you see so many celebrities like Patrick Mahomes and Shaq investing in these asset classes.”
Fractional shares provide the opportunity to provide passive income streams that can match or exceed high inflation.
“That makes them attractive additions to a well-balanced portfolio, especially in a recessionary environment when stocks, bonds and mutual funds can deliver below-average returns,” Rose said.