There might not be anyplace I hate more than the dentist. Actually, hate isn’t the right word, it’s probably “fear”. The soulless waiting room, the bright lights, the whirring sound of a drill, the scraping sound of a metal pick, it’s a misery symphony composed of pain and regret. We should all be going twice a year but given my propensity to avoid things I fear, I’m not even close to that schedule. When I do go I vigorously brush and floss the week before as if that’s going to save me from a hygienist picking thru my gums like a ravenous eater scraping lobster meat from a shell. You know what would help me avoid all this fear and pain? Preparation. Not waiting until it’s too late before soaking my mouth in burning Listerine and brushing my molars like I’m cleaning shower tile. There’s a lesson to be learned from my fear of the dentist and it has to do with your approach to living thru a recession.
There have been 11 post WWII recessions in the United States that have lasted, on average, 11 months (nice symmetry huh?) Economic recessions are the primary drivers of Bear Markets and as you can see here, they crush stocks. Here’s a quote (and a great chart) from a recent Washington Post article on recessions: “About 40 million U.S. adults haven’t seen a single recession during their working lives. Almost as many, including most millennials, have seen only one since they turned 18. That recession, the devastating Great Recession from December 2007 to June 2009, was (hopefully) not representative.”
Wow, that’s incredible, there are a TON of people who don’t even know what a recession feels like.
Allow me to make two guarantees right here, right now. The just announced 4th Matrix movie is going to be godawful and there will be another Recession one day. It’s not a matter of if but when, economies move in cycles and every expansion inevitably has a contraction. No one knows when it’s coming and what it will do to the equity market but we do know one thing: preparation will be key to getting thru it.
No recession is the same, they are products of unique circumstances both economically and behaviorally. Billions of dollars of mortgage debt going sour and a wholesale rout of consumers biggest asset (their home) brewed up one of the ugliest periods in stock market history, but just because 2007-2009 was one of the worst recessions ever doesn’t mean the next one will be that bad. Maybe we get a shallow recession caused by a decline in business spending and corporations suffer more than you and I. Maybe it only lasts a few months instead of 12 or 18, who knows, what I do know is that there’s something you can do about it right now.
Financial plans are living breathing things. You don’t create one and then carry it around etched in stone like Charlton Heston. Now is as good a time as any to reach out to your advisor and say “Hey, thanks for all your hard work and caring about my family and their well-being. By the way, what would my portfolio look like in a bear market? What are the various contingencies for our spending if economic worries mount?” You know what those questions are? They are brushing and flossing, using that stupid water thing that gets all over my mirror when I turn it on. It’s preparing yourself for the inevitable day when that next recession arrives. It’s being involved and not letting the winds of fate toss you around like so many dried leaves.
What’s that? You’re a younger investor who grew up during the GFC and have scars which run deep? Completely understandable, the vast majority of Millennials saw the economy plunge like a meteor and I won’t minimize how that shaped your view of the World. Just remember, time is on your side. As odd as this sounds you should almost be rooting for lower stock prices because it dramatically shifts the odds of long-term success in your favor. There’s no 15+ year period where the S&P500 total return has been negative so while a recession and a bear market will be scary, they are part of the reason stocks return what they do. Get someone by your side to help you thru the next one, dig thru your spending and see what you would cut out, raise a rainy day fund to buy dips or even a home if mortgage rates plunge. There’s lots you can do right now.
I know that if I just put more effort into preparing for dental visits that things would go smoother but I’m human and stress does weird things to us. We like to pretend that difficult things don’t exist when we can’t see them directly in front of our face. Take the time to prepare yourself for the next economic downturn so when it happens you can look back and say “Thank God Mike’s dental hygiene is so bad otherwise he never would’ve written that blog post which helped me weather this storm”.
Engage with your advisor right now and if you don’t have one who thinks about markets and investing the right way, the way we do at Baird, reach out and we’ll point you in the right direction.