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16 Reasons You Don’t Need To Panic About the Next Recession

Jaime Catmull

Headlines have been swirling in recent weeks about an upcoming U.S. recession, leaving many people in a panic. The Great Recession of 2008 had a major impact on income due to slower economic growth; caused a drop in home values and stock values, which really hurt people who were depending on these investments for their retirement; and led to major job loss, with 5.5 million Americans losing their jobs, according to research from The Pew Charitable Trusts. Because the last recession had such negative consequences on Americans’ financial lives, it’s understandable why you might be starting to get worried now — but you might not have to be, according to these financial experts who shared their thoughts with GOBankingRates. Although you might want to, here’s why you don’t need to panic about an upcoming economic recession and what you can do with your money to prepare for it.

Last updated: Oct. 15, 2019 

Take Recession Panic With a Grain of Salt

“Rather than panic over what can often be sensationalism by the media, it’s better to do your own research and look at the factors that impact your business and personal finances,” said Jon Bradshaw, co-founder and president of Appointment. “You also should assess what financial experts are sharing in terms of quantitative proof, as well as continue being as conservative as possible with your own money.”

Equity Markets Aren't a Good Predictor of Recessions

“In recent months, many financial experts have commented that the equity markets are forecasting a recession. Historically, equity markets are poor predictors of a recession,” said John Carter, president and COO of Nationwide Financial.

The Consumer Price Index Isn't Showing Signs of a Recession

“Recent August inflation numbers reflect an economy that’s not even considering a recession, with core CPI coming in at 0.3%, the same strong showing as in July and June,” said Robert Frick, corporate economist at Navy Federal Credit Union. “At this point the economy is keeping prices at a moderately growing level, which is good for consumers, given overall inflation is just below 2% and the average wage increase is above 3%. This increase in purchasing power feeds into more consumer spending, which at this stage in the expansion is the most important factor keeping the economy growing at a steady rate.”

Worrying About the Inevitable Is a Waste of Energy

“When you worry about something you can’t control, like the potential onslaught of the next recession, you create a lose-lose situation,” said Nate Nead, CEO of InvestmentBank. “When a recession does occur — and it eventually will — you might suffer through some financial pain and hardship at some point in the near or distant future. But, by worrying about it today, you actually end up suffering twice. Prepare for an inevitable downturn, but do not worry about it today. It’s something you simply cannot control and you are probably causing yourself to have a case of the double-dip recession fear.”

The Upcoming Recession Could Be Very Mild Compared To the Last One

“Since 1900, the average recession has lasted only 15 months, compared to an average four-year expansion. Not every recession will be like our last one,” said Kelly Crane, president and chief investment officer at Napa Valley Wealth Management. “In fact, the next recession could be quite mild. The combination of economic slowing, increasing unemployment, falling rates and low-priced energy give inflation no reason to rear its head. It’s possible we could wind down this business cycle and never see any inflation — a soft landing, so to speak, and highly abnormal. This environment would also curtail a quick recessionary plummet.”

You'll Be Fine If You're Prepared

“Preparing trumps panicking every time,” said Rob Berger, deputy editor of Forbes Money Advisor and author of “Retire Before Mom and Dad.” “Work on building up your cash cushion, keep paying down debt and set an asset allocation plan you can stick with in any market.”

You Have Time To Adjust Your Asset Allocation Before a Recession Hits

“To clients, I give the parallel of going to a doctor to get a stress test — have the doctor stress your heart in a controlled environment to see if there are any issues before you have a heart attack. With a portfolio stress test, the thought would be to run scenarios of a market correction, increased interest rates, changes in commodity prices, etc., to see if your portfolio would have too much negative volatility if a historical risk repeated itself,” said Scott Bishop, executive vice president of financial planning at STA Wealth Management. “If you study the history of your current portfolio and if you see too much risk, you can make appropriate changes before the portfolio ‘heart attack.'”

Businesses and Consumers Will Be More Prepared This Time Around

“Previous recessions caught the majority of businesses and consumers off guard. This time, there are more discussions about the state of the economy, the signs to be aware of and the steps to be better prepared should it actually happen,” said John Rampton, co-founder and CEO of Calendar. “In being more attuned and prepared, there shouldn’t be any reason to panic.”

Central Banks and Governments Also Will Be More Prepared This Time

“Policymakers in central banks are already moving proactively to reduce the impacts, and governments should be prepared in advance to encourage fiscal stimulus to support monetary policy initiatives from central banks,” said Jameel Ahmad, global head of currency strategy and market research at FXTM. “This is why the average person in the street should not be as anxious as a decade ago, but nonetheless should still remain vigilant to what is going on in the economic world. It is a positive that many everyday folk are already aware of the next recession before it even gets here.”

The Market Typically Reacts Quickly to Recessions

“Markets are incredibly efficient, and reacting quickly in an attempt to front-run the markets can end up doing more harm than good,” said Shawn Cruz, trader business strategy manager at TD Ameritrade. “The key for investors is to not panic. Investors that remain engaged in their financial/investing situation consistently — not just when everyone is panicking — are usually in a better position to handle periods of weak growth impacting their portfolios, as their investment portfolios are more likely to be well-balanced and diversified. Here’s one example of how panicking or trying to predict a recession can impact your investments: there have been calls for the U.S. to hit recession all year. If an investor panicked and sold their equities in anticipation, they would have missed out on [approximately] 16% return year-to-date from the S&P 500.”

If You Don't Overspend Now, You'll Be Fine When the Recession Hits

“While it’s always good to be cautious about the possibility of a recession if you focus on managing your cash flow and finances through making thoughtful and measured decisions, you and your business can better weather these potential storms,” said Chalmers Brown, co-founder and CTO of Due. “There is never a good economic cycle to overspend or overextend yourself.”

Younger Generations Have Recession-Proofed Their Lives

“The faith sits with the Gen X and millennial generations who lived through the Great Recession,” said Joe Martin, GM and vice president of marketing and strategy at CloudApp. “These groups have proved to save more, spend less, be willing to work remotely, put a focus on productivity and collaboration, expand their skill sets and stay in that two-bedroom house or apartment a little longer. A recession may come, but hopefully, these generations have learned to be just as ‘recession-proof’ as a blue-chip stock.”

Recessions Can Be an Opportunity for Growth

“Recessions are short-lived and usually an opportunity for huge growth if you are doing something valuable and sustainable,” said Erik Huberman, founder and CEO of Hawke Media. “It is a small step back for a massive step forward if you are prepared for it, so just be prepared and it can be a great thing.”

Recessions Can Be a Good Buying Opportunity

“A recession can mean buying opportunities for the experienced long-term investor,” said Winnie Sun, managing director of Sun Group Wealth Partners. “Seek out guidance from a professional financial advisor.”

The Market Still Is Likely To Go Up Over Time

“The market is likely to do what it has historically: Go up and go down, but end up going up over time,” said Peter Mallouk, president and chief investment officer of Creative Planning. “The most important thing about this ride is to have a plan structured around your unique set of circumstances so you end up on the right ride to get you where you want to go.”

If You're Young, You Have Time To Make Up for Any Losses

“The good news for younger savers is that losses to an investment can be relatively easy to make up over a long time horizon,” said David Stone, co-founder and CEO at RetireOne.

Focus On What You Can Control

“You don’t need to panic about the next recession if you have a good handle on your finances,” said Sharon Epperson, CNBC senior personal finance correspondent. “If you don’t, now is the time to focus on what you can control. You won’t be able to change the direction of the financial markets, but you can change how you prepare for any turbulence in the months ahead.”

Now that you know why you shouldn’t panic, here’s what Epperson said you should do to prepare.

Assess Your Job Security

Do you have a recession-proof job, or do you think you could lose your job if a recession hits?

“Make sure your resume is up-to-date and look out now for new opportunities if you think your job could be in jeopardy,” said Epperson.

Build an Ample Emergency Fund

“About 40% of Americans would struggle to come up with $400 for an unexpected expense, according to the Federal Reserve. Strive to build your stash of cash reserves to last six to 12 months,” said Epperson.

Be More Cautious With Your Spending

Think before you spend, said Epperson.

“That may mean eating out less or holding off planning your next vacation,” she said. “You may also want to consider delaying big purchases like a car or even a home.”

Protect Your Investments

“Protect your portfolio by making sure your investments are in different types of tax-advantaged accounts,” said Epperson. “Consider switching your future 401(k) contributions from a traditional 401(k) to a Roth 401(k), if your company offers one. Money in Roth accounts grows tax-free. If you switch jobs or when you retire, you can transfer your Roth 401(k) money to a Roth IRA. And, having more money in a Roth IRA account also gives you a great deal of flexibility in retirement since there are no required minimum distributions.”

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Gabrielle Olya contributed to the reporting for this article.

This article originally appeared on GOBankingRates.com: 16 Reasons You Don’t Need To Panic About the Next Recession