Getting Ahead of the Next Recession

Jason Silverberg |

Getting Ahead of the Next Recession

Jason Silverberg, CFP®, CLU®, ChFC®


“To everything (turn, turn, turn)
There is a season (turn, turn, turn)”

-The Byrds


Miriam Webster defines a recession as “a period of temporary economic decline during which trade and industrial activity are reduced, generally identified by a fall in GDP in two successive quarters.” While a recession is a barometer of the health of the US economy, a bear market is defined as a “20% or greater decline from a recent stock market peak.” Many times, a recession does pair with an extended downturn in the stock market, however, these two events can occur independently of one another.


Currently, in 2019, the United States has been in the growth phase of the economic cycle as well as an extended bull run in the stock market for the past 10 years. It would not be unreasonable to see a contraction begin over the next 12-24 months. In preparation for this deceleration, it might be a good idea to run a short “fire drill” with your financial plan to be prepared for the inevitable, whether it comes sooner or later.


As we review your investment portfolio, the first thing we should think about is your time horizon and risk tolerance. If you have a shorter time horizon, anything less than 5 years, then we might want to consider reducing the exposure to riskier assets. At the same time, if you have a longer time horizon, but just can’t stomach the roller coaster ride, then reducing your portfolio’s risk might not be a bad idea either. Keep in mind that reducing risk exposure does not necessarily mean pulling all your money out of the stock market. By dialing down the risk, but still maintaining a well-diversified portfolio, you can reduce your risk without sacrificing too much returns. Keep in mind that a diversified portfolio may still fall in a down market. Be sure to rebalance your portfolio during this time to make sure that you’re in line with the most efficient model portfolio.


From here, we’ll want to tie your investment portfolio to your broader financial goal. Whether it’s retirement, funding for college, or some other goal, we’ll want to “stress test” your plan to project out your probability of success. Running a Monte Carlo simulation might be a good way to see what might happen if you retired or sent your kids to college during a period of market instability. In doing this analysis, the Monte Carlo simulation analyzes 1,000 stock market scenarios to determine the probability of outcomes and can show what might happen if you started taking distributions in a down market. While, running the Monte Carlo analysis does not guarantee any outcomes, nor does it project out future performance, these simulations can help you determine possible outcomes and uncover scenarios where you might fall short of your goal. Either way, its nice to know where you stand.


If you’re nearing retirement and have concerns with supplementing retirement income, as well as wanting to protect on the downside, you might want to consider adding annuities as a hedge against any market downturn. You may have reviewed these products in the past and determined that they weren’t worth the extra fees and complexity. However, you should consider giving them a second chance to determine if they would fit your retirement strategy. Please note that annuities do have extra fees and surrender charges, so be mindful of this as you review these products.


During challenging economic times, there might be other collateral damage that you might face besides volatile investment returns. During a recession, unemployment might creep higher. If you’re facing a potential job loss, it might be a good idea to dust off your resume and punch it up. Maybe we use this “fire drill” as an opportunity to enhance your skills at your company to make yourself more valuable. It also might be a good idea to review your budget and emergency cash reserves to know where you might be able to cut if needed. Consider moving your cash reserves to a high yield savings account that might provide higher interest than traditional brick and mortar banks. If you receive your life and health insurance benefits from your employer, it might be a good idea to shop around to see what options might be out there if you lost these policies. Personal life insurance costs may be lower than group insurance if you’re healthy and a non-smoker.


During the last recession, the housing market became quite unstable. Evaluate whether you plan to stay in your house for the next 5-7 years. Since interest rates are on the rise, you might want to consider paying off your HELOC and other debts faster to eliminate those monthly payments. It’s also a good idea to review your credit report at least once per year. is the most secure way to do this.


If you’re a business owner, consider what might happen if revenue slowed down. What cuts might you have to make? As a self-employed taxpayer, have you reviewed if your quarterly estimates are up-to-date? If you expect to owe money come April 15th, the timing of that tax bill might come at a time when cash on hand might be tight. Evaluate with your tax advisor if you are sending the right amount to the IRS to be on target with your taxes.


Just as the seasons change, so too do economic and market cycles. It’s just part of a healthy growing economy. We can learn much from the squirrel who prepares for the winter by hoarding acorns. Anticipate the change in season and be better prepared. Let me know how we can help! We meet with our clients regularly to discuss the winds of change and how to best navigate the ups and downs. Lean on us to help you reach your financial goals safely and on time. Contact me at 301-610-0071 or to set up a time to review your plan today!



Monte Carlo Analysis is a complex statistical method that charts the probability of certain financial outcomes at certain times in the future by generating many possible economic scenarios that could affect the performance of your investments. Tools such as the Monte Carlo simulation will yield different results with each use and over time depending on the variables inputted and the assumptions underlying the calculation. IMPORTANT: The projections or other information generated by a Monte Carlo simulation regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results and are not guarantees of future results.
An annuity is intended to be a long-term, tax-deferred retirement vehicle. Earnings are taxable as ordinary income when distributed, and if withdrawn before age 59 ½, may be subject to a 10% federal tax penalty. If the annuity will fund an IRA or other tax-qualified plan, the tax deferral feature offers no additional value. Qualified distributions from a Roth IRA are generally excluded from gross income, but tax and penalties may apply to non-qualified distributions. Please consult a tax advisor for specific information. There are charges and expenses associated with annuities, such as deferred sales charges for early withdrawals.
Neither asset allocation nor diversification guarantee against loss. They are methods used to manage risk.
This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results.  This information should not be relied upon by the reader as research or investment advice regarding any funds or stocks in particular, nor should it be construed as a recommendation to purchase or sell a security.  Past performance is no guarantee of future results.  Investments will fluctuate and when redeemed may be worth more or less than when originally invested.
Separate from the financial plan and our role as financial planner, we may recommend the purchase of specific investment or insurance products or accounts.  These product recommendations are not part of the financial plan and you are under no obligation to follow them.
2538781 DOFU 5/2019