Geopolitical tensions, energy market imbalances, persistently high inflation and rising interest rates have many investors and economists worried about a 2023 recession.
As countries around the world slip into financial disequilibrium one by one, the duration of the current recessionary cycle and how long it will take to recover has been a focal point of discussion among many financial experts and professionals.
However, according to financial advisor lucas nobleA recession is not necessarily a cause for panic. “When people hear the word recession, they can’t help but feel dread, and I don’t blame them,” says Noble. “Yet, one way or another, there will be a recession. It’s part of an economy’s regular cycle.”
An economic cycle refers to the fluctuating state of a market-based economy from periods of expansion to contraction. Factors shaping the economy include global economic conditions, trade balance, inflation rates, and exchange rates.
Noble explains, “The economy goes through four phases.” “While this is ideal for the economy to expand, once it reaches the second stage – the peak – it causes an imbalance that only a period of contraction, or recession as we call it, can remedy. “
A contraction usually occurs when the economy reaches its peak and continues until the trough phase, after which the economy gradually recovers. After one cycle is completed it continues again.
“That’s what’s happening right now. I would argue that we have been in a recession since last year, in fact,” says Noble. “Of course, there is no way to calculate how long each phase will last, but it is extremely important for people to know that there are ways to prepare themselves for an economic downturn.”
For investors, it is important to know which risk factors to watch for and how to set up one’s portfolio in order to optimize performance in a tough market. One way to stabilize a portfolio, for example, is to diversify it according to your investment goals. For risk takers, studying the market and paying close attention to its oscillations can provide investors a cushion to cushion the blow once a downturn hits.
“High interest rates and inflation are major contributors to the current recession,” says Noble. “Inflation is somewhat inevitable, but there are ways to get through it.”
Maintaining stock exposure, or reducing exposure to volatile stocks and increasing cash holdings, is one way to hedge inflation, according to Noble. Furthermore, a recession is not necessarily about losing money but about the fact that stocks are going down.
Lucas Noble insisted, “They have to come back up.” “There is a problem when someone withdraws their money when they are down.”
When the economy enters its contraction phase, young investors panic, and many scramble to sell their stocks. On the other hand, seasoned investors recommend that periods of market decline are the best time to continue investing and expand your portfolio.
“This is an opportunity to buy shares of stock at a low price,” explains Mr. Noble. “This means you can potentially earn a higher return on your investment once the market recovers.”
Still, it’s not unreasonable to feel anxious when faced with a potential loss. Rather than succumbing to fear, the best strategy for any investor would be to stay the course and stick to investment amounts by applying strategies such as dollar-cost averaging, which helps people to intelligently invest in down markets. helps to do.
As Mr. Noble concluded, “With the right preparation, strategy and sticking to your financial plan, investors can weather the storm and find plenty of opportunities for growth. The key is not letting it scare you from investing in your future.