What Does a Recession Mean For Me and My Portfolio?

A lot of people are stressed right now and have questions related to the economy. 

• Is a recession coming in 2023? 
• How long can a recession last? 
• What does a recession mean for me and my portfolio?

Recession concerns have been a fixture in the news lately, prompting many investors to wonder what factors go into a recession announcement and how an economic downturn would impact their portfolios. 

A Look Back on Prior Recessions: 

Recessions may understandably trigger worries over how markets might perform. However, you should be aware that recession announcements are backward-looking, in contrast to the forward-looking nature of markets. Recessions are typically determined using macroeconomic indicators such as employment rates, consumption and income data, and gross domestic product growth—information rapidly incorporated into market prices.

Recessions are often officially declared after the market is already on the path to recovery. Consistent with forward-looking expectations, average US equity returns have been positive after the onset of a recession, as seen in Exhibit 1 below.

The chart above shows that the S&P 500 Index had positive average returns following recession start dates that were similar to overall averages across one, three, and five-year time horizons from 1947 to 2022. The historical data suggests you can benefit from a disciplined approach that avoids making investment decisions based on lagged economic outcomes. 

For example, look back to the Global Financial Crisis of 2007-2009. The official “in recession” announcement came in December 2008—a year after the recession had started. By then, stock prices had already dropped more than 40%.¹ Although the recession ended in May 2009, the announcement came 16 months later, when US stocks had rebounded.

In short, history shows that markets incorporate expectations ahead of the news.  Recessions are often officially declared after the market is already on the path to recovery.  

Comprehensive Financial Planning for Successful Individuals

Ask yourself this question: “Do I have a plan in place that will provide me and my loved ones with a lifetime of spendable income, even if there is an economic downturn?”  

Imagine how you would feel if you had the benefit of having a comprehensive financial plan guided by the evidence of more than 70 years of research and experience. Hopefully, your stress level will be dramatically reduced!  

A comprehensive financial plan should proactively address what to do when markets fall, and chaos arises.  Your plan shouldn’t be just about ways to invest in obtaining a higher return.  It should account for how you invest as market conditions change over time. This type of plan allows you to stay invested for the long term.

How Cogent Strategic Wealth Can Help

As a successful, ambitious individual who has accumulated substantial wealth, it’s clear that you’re someone who sets the bar high. Your days are packed, and your mind constantly buzzes with new thoughts and ideas. However, your time is limited and precious. You’re trying to navigate this alone or dealing with an advisor who simply can’t keep up with your pace. Many financial challenges are out there, and we are here to help you get the help you deserve. 

At Cogent Strategic Wealth, we serve as your fiduciary financial advocates. We do this through our Design | Build | Protect strategy, tailored to empower you to live life on your terms.

Design: Working in partnership, we’ll delve into and understand your life and financial objectives.

Build: We’ll conduct extensive research and construct a comprehensive financial plan based on proven methodologies. Our approach is rooted in science, not guesswork, and is always customized to your needs.

Protect: We’ll put your financial plan in motion, and with ongoing monitoring of your plan, we’ll assist you in maintaining your pursuit of financial independence. 

We also offer a second opinion service.  Here is how it works: 

Much like how you would receive a second opinion from a medical doctor to ensure your treatment is appropriate, we, too, take a problem-solving approach, objectively reviewing your current financial plan and sharing what we’ve learned. 

Questions that we’ll explore during our review include: 

1. Do you fully understand what you have in your portfolio?
2. How is your portfolio performing for you?
3. Are you taking on too much or suffering from too little investment risk?
4. Are you paying too much in fees?
5. Are your investments well-aligned with your and your family’s life goals? 
6. Are your financial and investment plans specifically tailored to you, and are you on course?
7. Are you living Life on Your Terms?

We’d love to be able to help you conquer your financial challenges and pursue your financial goals. It is our intent to educate you on what is available, whether you work with us or not. We will help you get to a better place.

Our clients, who look beyond after-the-fact headlines about markets and the economy and stick to a plan, can be better positioned for long-term success. To learn more about our Second Opinion Service, we invite you to start a conversation with us. 

¹ Stock price decline of more than 40% from December 2007–December 2008 is based on the S&P 500 Index’s price difference between the actual start of the recession in December 2007 and the official “in recession” announcement 12 months later.

For informational and educational purposes only and should not be construed as specific investment, accounting, legal or tax advice. Cogent Strategic Wealth provides investment advice only through individualized interactions. Certain information is based upon third-party data, which may become outdated or otherwise superseded without notice. Third-party information is deemed to be reliable, but its accuracy and completeness cannot be guaranteed. Indices are not available for direct investment. Their performance does not reflect the expenses associated with the management of an actual portfolio nor do indices represent results of actual trading. Information from sources deemed reliable, but its accuracy cannot be guaranteed. Performance is historical and does not guarantee future results. Neither the Securities and Exchange Commission (SEC) nor any other federal or state agency have approved, determined the accuracy, or confirmed the adequacy of this article. © 2023, Cogent Strategic Wealth®