Page 96 - June 2022

FINANCIAL PLANNING
Arecession is a period of temporary economic decline during which trade and industrial activity are reduced. This is typically identified by a fall in GDP (gross domestic product) in two consecutive quarters. The term “recession” can be a scary thing to hear as an investor. If you watch the news, it’s more than likely that you’ve heard a recession could be approaching. In this article, I want to tell you what the news doesn’t. I want to tell you that recessions are much more common than you think. I also want to tell you that good things can come from a recession. On average, a recession occurs about every three years. The last recession occurred in March of 2020 when Covid-19 hit the U.S. It has now been over three years since that reces- sion which is one of the reasons the mainstream media is talking about it.
NOTEWORTHY RECESSIONS
When people hear recession, they may think doomsday. Perhaps the worst recession in U.S. history was the Great Depression, which was devastating for most Americans. This began in October of 1929 after a
period of exceptional growth referred to as
the “Roaring Twenties.” The economy was surging, and investors were piling their savings into the stock market and buying on margin in hopes of growing their wealth. The U.S. economy was expanding rapidly, and the wealth of the U.S. had more than doubled
in the decade. Unfortunately, this growth couldn’t last forever. At the lowest point of
the Great Depression, roughly 15 million Americans were unemployed and some 9,000 banks failed. When we hear recession today, it’s not uncommon to compare it to the Great Depression, which is drastically different than the typical recession.
Another comparison we make is the housing market crash of 2008. This is referred to as the Great Recession and was caused by the bursting of the U.S. housing bubble. Homeowners
were trapped because they couldn’t afford their payment but couldn’t sell their house either. This recession was directly linked to the “subprime mortgage crisis.” Home loans were granted to people with very poor credit and
in many cases, they didn’t even have to show
record of employment. This resulted in millions of people losing their jobs and life savings.
These two examples are worst case scenarios. As we all know, the housing market is through the roof right now. Many people think the housing market is going to crash again like it did in 2008. In my opinion, this isn’t likely. The government has thrown so much money into the economy that it’s caused people to have extra funds to purchase homes. Prices will eventually level off. Discussion about a housing market crash is another way for the media to get your attention.
INVESTING DURING A RECESSION
Recessions are an intimidating event, especially for retirees. These individuals are relying on their retirement income to sustain their monthly spending. That’s why seeing a big drop in your portfolio can cause you to make emotional decisions. Many will see a big drop in their accounts and sell their investments. The chart I have below shows the worst days for the S&P 500 in the last 40 years and the returns one, three, and five years after that specific day.
HISTORY OF RECESSIONS by Cade Peterson, Financial Planning Associate
94 SPEEDHORSE June 2022