The Conference Board predicts with 96% certainty that the US economy will enter a recession in 2023.
This scenario has Americans worried about their own financial prospects for the coming year. A recent survey found that more than two-thirds (69%) of US adults fear a looming recession, with 41% saying they are not “prepared” for tough economic times.
Good news? Financial experts say there are steps you can take to mitigate the effects of a nasty recession. But you will have to work at it.
“Let’s face it, many of us are stuck in a routine, living day-to-day and paycheck-to-paycheck without any plan,” said professional stock trader Thomas Kralow. After all, Steve Jobs never said, ‘Well, let’s see where this takes us’ when Apple invented the iPhone.
“If you want to achieve something big, you have to have a plan and stick to it,” added Kralow.
Six financial moves to make now, ahead of the recession
If you want to go big and stave off the recession in ’23, financial experts advise taking these measures — and the sooner the better.
Create a plan to fight the recession. Build a defensive financial plan — but not just any plan, Kralow said. “Simply listing your desires will not be worth it,” he noted. “Any plan must include the following”:
· Your current location
· Your long-term goals
· Realistic short-term milestones
· An assessment of your current skills and assets and what you need to add to achieve your goals
“Once you have your plan, be sure to check in regularly to make sure you’re moving in the right direction,” Kralow added.
Stop buying things you can’t afford. More than 3 in 5 (61%) Americans have a credit card, and the average balance in 2022 is $6,194. Add in late payments with Buy Now Pay Later schemes that put consumers even further into debt, and that debt becomes a problem.
“Stop trying to impress, stop comparing yourself to others, and stop buying things you can’t afford,” advises Kralow. “Apart from the bank managers who profit from your debt, no one cares about your frivolous purchases.”
Minimize food costs Inflation has skyrocketed 7.7% since October 2022, according to the US Bureau of Labor Statistics.
“To save, shop as much as you need to avoid perishable waste, but also shop on sale,” said DailyPay Vice President of Customer Success Kate Cheesman.
“Sign up for your supermarket’s rewards program and browse their weekly catalog for coupons and deals.”
Buy in bulk when you can. “It’s a great way to reduce the cost of needed goods,” Cheesman noted.
Diversify your income. Many companies are downsizing, and this trend is likely to continue during the recession. To protect yourself from an unpleasant situation, explore ways to supplement your income.
“You don’t need two full-time jobs,” Kralow said. “Instead, consider starting a home project, freelance, invest, consult, or share your knowledge online. This is where adding new skills and knowledge to your toolkit really comes into focus.”
Focus your portfolio on reliable consumer stocks. The good news for investors is that several successive and moderate rate hikes are widely expected to be appreciated by the markets.
“The bigger concern for stocks in 2023 is certainly the Fed’s proposed slowdown, which is likely to cause downward earnings revisions and/or earnings misses,” said Reid Hartman, chief economist at Global Predictions.
The safest stocks to hold in the new year are in sectors like consumer staples, utilities and health care, Hartman said.
“There are likely to be opportunities to turn into recovery-oriented stocks later in the year at reasonable prices (eg categories such as consumer staples, industrials and real estate) after expected earnings decline and prices fully moderate,” he said. “Investors should also feel more comfortable holding bonds when interest rates are peaking.”
Go the fractional way. Households seeking recession-proof investments should consider partial ownership of historically high-earning “real” assets/alternative investments such as real estate, high art, farmland, and franchises.
“Fractional shares have long been popular with the 1%, but only recently have they become available to retail investors,” said Franshares CEO Kenny Rose. “There’s a reason why you see so many celebrities like Patrick Mahomes and Shaq investing in these asset classes.”
Fractional shares offer the opportunity to provide passive income streams that can match or beat high inflation.
“This makes them attractive additions to any well-balanced portfolio, especially in recessionary conditions when stocks, bonds and mutual funds can deliver below-average returns,” Rose said.