Preparing for a Potential Recession in 2023

Preparing for a Potential Recession in 2023

December 06, 2022

“Before anything else, preparation is the key to success” - Alexander Graham Bell. Recession is very likely in America's future, but it will take its time arriving. Here's how to plan accordingly.

There are some key economic indicators pointing to a recession in 2023. The most prominent being the Fed’s decision to continue to raise interest rates in the face of rising inflation. The October job report continued to show historic lows in unemployment, with over a quarter of a million jobs being added. Facts like these show that a recession could be considered likely. That makes preparation more important than ever. Ensuring that your family is in the best financial position possible will benefit you even if we do experience a recession. 

Read on to learn a few ways to stay one step ahead of a potential recession in 2023.

Know the Warning Signs

Stay informed. There are a handful of indicators that can point to a recession. While none of these signs indicate a recession with 100% certainty, they are worth paying attention to. 

Consumer spending is one such sign. While most won't have access to all of the data, a simple search can point to the fact that October’s online spending was roughly on par with last October. If we see a considerable dip in money spent, this can indicate the public has concerns about spending money vs saving it.

Unemployment reports are also a major indication. Currently unemployment is around 3.7%  which is near historic lows. To put this in perspective, at the height of the great recession, unemployment was as high as 10%. 

Finally, watch housing prices. If they begin to plummet, this can show a similar thought process to consumer spending. The general public - as a whole - may feel buying a home is a risky proposition and holding off may be a better option in the face of economic uncertainty.

Prepare an Emergency Fund

A six-month emergency fund is always worth having, but with inflation, have you adjusted your fund?

If your six-month fund was prepared in May of 2020, when inflation was essentially zero, then that money is simply worth less today than it was then. Ensure that your emergency fund is keeping up with inflation, so that in a worst case scenario you and your loved ones are covered while you regroup.

Review Your Budget

As interest rates creep up, major purchases like cars and homes may be something to put on hold. Instead, focus on other debt such as an existing car payment or other personal loans. 

Beyond this, it’s worth evaluating your “kitchen table” budget - things like food, entertainment, allowances, etc. Small changes to unnecessary expenses can add up over time and put you ahead.

Evaluate Bonds

Investors who have already endured one of the most challenging years ever must now confront the question of how to invest when the U.S. and other major economies may be headed toward a recession. While financial market volatility is likely to persist, we believe the case for bonds is stronger than it has been in years, bolstered by significantly higher starting yields and bonds’ strong track record during economic downturns.

Currently a two-year United States Treasury note has a 4.4% yield, while a 10-year note has a 3.9% yield. While bonds are not going to offer the immediate satisfaction of a skyrocketing stock, they can offer a steady return in the face of a recession. Considering that most stocks are down across the board, bonds can help counteract this dip and be a low-risk position for a portion of your assets.

Final Thoughts

As Alexander Graham Bell said, preparation is the key to success. Whether a recession occurs or not is unknown, but being prepared for one is absolutely in your control.

By knowing the warning signs, and taking proper financial steps, you can put yourself and your loved ones in the best possible position if the economy takes a turn for the worse.

Schedule a call with the Agemy Team today. We will secure your financial assets to ensure the health & longevity of your portfolio.