Financial planning cannot happen in a vacuum. No matter what your own plans are, successful planners take into consideration the overall economy and other exterior factors. Key among these is the boom and bust cycle of recessions and strong economies. How can you plan for both? Here are four key takeaways.
1. Look at History
Modern investors have an advantage that earlier generations may not. They can look at even more historical data to understand how economic cycles work. By looking at the long history of the economy and the stock market, you will quickly notice, for instance, that recessions and periods of growth are perfectly normal. On average, periods of expansion last a little over three years, while periods of contraction last nearly a year and a half. This gives you the ability to look at the long-term and plan accordingly.
2. Take Advantage of Both Cycles
Both recessions and expansions have their pluses. During a recession, stocks and bonds are often available for purchase at a significant discount. By buying low, you can eventually sell high and make a greater profit. On the other hand, expansions are good times to retire and begin to draw on your accounts.
3. Work With a Professional
Educating yourself and taking a long-term approach helps investors make good choices, but a professional will help even more. A qualified financial planner understands your options and can help you take advantage of whatever cycle is coming. And an independent broker will help you sort through stocks to find the right combination for the times.
4. Be Flexible
The best way to use the cycle to your advantage is to be flexible about when you use money in your portfolio. If you have a set date for retirement, for instance, and it happens to come during a recession, can you wait a year or two until things begin to grow again? On the other hand, if you are waiting to retire but signs point to a recession, you may want to lock in high prices by selling some assets early. Flexibility makes you able to respond to conditions and make changes where needed.
If you can learn the best ways to respond to outward economic conditions, your options will only increase. By being flexible, being smart, and using any economy to its best, you can build up a bigger nest egg and a strong portfolio that weathers anything. Start making positive changes today by talking with an independent broker-dealer at a company like Peak Brokerage Services, LLC.
Share14 November 2019
After we bought a house, I started realizing that we were going to need to learn to save a little money. We had become pretty laid back about spending because we were so accustomed to making so much extra each month, but with a mortgage, we found ourselves running out of money on a regular basis. I decided to get real about our finances, which is why I set up a financial plan to stick with year round. You wouldn't believe how much of a difference that simple plan made. We went from scraping together money to head to the grocery store to sticking with a rock solid budget.
