How to recession-proof your finances

How to recession-proof your finances

Will there be a recession in the near future? That answer is unknown. However, preparing your finances and assets for such an event and staying calm during volatility is vital for all investors.

The current market conditions are tough. Last week we saw the S&P 500, and the Nasdaq falling into bear territory. However, recent volatility is nothing unknown and the past few years have showcased seriously high single-day falls and single-day rises, with the pandemic and inflation being examples of those

Our team of financial advisers have put together a list, looking at how to recession-proof your investments if there were to be one again.

1. Overtake Inflation

Historically speaking, the stock market protects wealth when it stays ahead of inflation. Our advisers suggest stabilising your portfolio with companies that have a low price/earnings ratio, low debt, and a steady cash flow.

This also means that you overlook short-term volatility fears for long-term gains. Instead of a knee-jerk reaction to every small dip, focus on being invested for a longer duration. Companies that have experience with unstable macroeconomic situations and are competitively well-positioned are likely to do well.

Time in the market

2. Consider this a buying opportunity

Markets are expected to recover relatively quickly, just like after the pandemic struck says Kareem Rathore, partner and financial adviser here at Hoxton Capital Management. “Stocks being undervalued due to the panic might be a good time to buy”.

There’s no way of knowing when the market has touched the bottom, but if you have the finances try to get your hands on the stocks that you’ve had an eye on.

However, if you do not have the money to spare, don’t be tempted to deploy your money. Instead, stick to your investment plan, stay on track and remain invested and patient. 

3. Stay invested

Panicking is no good. Instead of being scared off by the morning headlines, try to weather out the storm and wait for the recovery. The markets have seen and been through crises many times before. And while recessions are not uncommon, most investors who ride them out see their portfolios recover. Warren Buffett famously once said, “If you aren’t willing to own a stock for ten years, don’t even think about owning it for ten minutes.”

Warren Buffett quote

There is no point worrying about the inverted yield curve (interest rates of government bonds over different time durations) if you plan on investing long-term. Diversify your portfolio to protect yourself against the worst and most importantly, seek advice from reputable financial advisers. Partner and financial adviser, Moheen Ahmed says ” there is no doubt panic has set in among some investors, but those that remain cool, calm and collected are preparing for the time the markets begin to show signs of a positive outlook. Long term investors win.”

4. Take advantage of Weak Currencies 

A weakening currency drives up import costs and makes exports cheaper. It is also a fantastic buying opportunity for expats earning in a foreign currency such as AUD, USD, EUR & AED. There has been a % drop in value against GBP, which makes settling debts at home and paying off mortgages a little easier. Investing in the property market comes at a discount. All of this while making British local production competitive with higher output. 

Overall

In the long run, dips in the market are unseen as the years go on. The biggest mistake people can make is to be shaken by temporary setbacks.

Planning and strategising for volatile times takes understanding the markets. If you are looking to safeguard your investments but are not sure of how to do so, speak to one of our advisers today. With tailor-made guidance on your finances, you can be better equipped to deal with volatility. 

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Hoxton Capital

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