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In Order to Survive a Recession, Think Long Term

January 06, 2016

There's nothing more panic-inducing than watching the stock market sink, the economy slow, and hear market watchers start using the term "recession." If you've got a significant chunk of your financial investments at risk in the market, you need to know how to survive the inevitable booms and busts that come with investing. The key to surviving any recession is long-term vision.

Get Diverse

If your investment portfolios aren't already diverse, now's the time to diversify to help protect against downward trends in the future. Bear markets usually usher in a trend of volatility in the stock market, so consider allocating your funds across a variety of different investment types that mix high-risk with conservative approaches to help insulate your overall investment growth against wild swings in either direction.  Please remember that diversification and asset allocation do not guarantee a profit nor protect against loss in a declining market.  They are methods used to help manage risk.

Be in for the Long Haul

Recessions, by nature are usually short in duration. According to Investopedia, recessions are a normal function of the economic cycle. The market grows, peaks, and must contract as it cuts out industries or sectors that are no longer sustainable. The average cycle sees a recession occur once every four to five years, or every seven to eight years in a best-case scenario. On top of that, eight out of the last 10 recessions lasted less than one year in duration, as pointed out byAbout News.

Be Patient, Stay the Course

Investing should always be viewed as a long-term deal. While recessions bring a temporary loss to your portfolio, the long-term return rate for average investments is 8%, and that includes the inevitable downturns brought on during a recession. The key to success is patience. Avoid dropping funds that normally perform well simply because they take a slight downturn. Even more importantly, avoid adjusting your portfolios or moving funds on a whim driven by emotion.

Look to the Future Trends

Even in the midst of a recession, certain sectors of the economy may be gaining steam and preparing to lift the greater economy out of its malaise. Take the recent Great Recession in the United States. At the depth of the downturn, the oil and gas sector began to experience extensive growth due to new drilling techniques.

The boom in oil and gas production led to job growth in the energy sector, housing sector, travel sector, and many others as people chased energy jobs outside the traditional Gulf Coast region to as far north as Minot, North Dakota. The resulting boom in production led to a glut of oil on the global stage, and lower gas prices. Lower gas prices meant cheaper goods in America, and greater spending from consumers.

Understand the Invisible Hand

America is built on a system of hands-free, or laissez-faire economics, but that's not how the country's economy actually runs anymore. When the economy lags, the federal government steps in with bond buying programs and other tactics, such as holding down interest rates, to encourage spending and growth.

Just remember that recessions are never long-term dips. A recession is a natural correction in the order of markets and economies, and proven stocks, bonds, and commodities will eventually rebound and post the type of growth you're accustomed to seeing from your portfolio. Contact Manhattan Ridge Advisors for help developing a financial plan to help you survive through the economic cycles.