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Many investors suspect that months of stock market volatility, rising inflation, and rising interest rates will lead to a recession.
Thursday’s stock market fell again, S & P 500 That capping One year from the start of the worst six months since 1970.. Overall, it has fallen by more than 20% so far. The Dow Jones Industrial Average When Nasdaq Composite Index In addition, it has decreased significantly since the beginning of 2022, decreasing by more than 15% and nearly 30%, respectively.
Meanwhile, consumers’ sentiment towards the economy has plummeted, according to the University of Michigan’s careful watch. Consumer surveyMeasured a 14.4% decline in June, a record low for the report.
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Elliott Herman, a certified financial planner and PRW Wealth Management partner in Quincy, Massachusetts, said:
However, no one can predict when and when a recession will occur, so Harman wants clients to be proactive and make sure their portfolio is ready.
Anthony Watson of CFP, founder and president of Thrive Retirement Specialists in Dearborn, Michigan, said diversification is important in preparing for a potential recession.
Of the 4,000 exchange-traded funds, the company is unlikely to go bankrupt, so choosing a fund rather than a separate stock can reduce the company’s inherent risks, he said.
He suggests looking at a combination of growth stocks that are generally expected to provide above average returns and value stocks that are usually traded at a price below the value of the asset.
“Value stocks tend to outpace growth stocks that are in recession,” Watson said.
International exposure is also important, he added, with many investors defaulting to 100% domestic assets due to equity allocations. Strategies from other central banks may trigger other growth trajectories while the US Federal Reserve is aggressively fighting inflation.
Market interest rates and bond prices are usually Move in the opposite direction, The Fed’s rate hike has sunk the value of bonds.benchmark Treasury for 10 yearsWhen the bond price goes down, it goes up, Exceeded 3.48% on June 14thBest yield in 11 years.
Bonds are still an important part of the portfolio, according to Watson, despite the slump in prices. If stocks plunge into recession, interest rates will fall, bond prices will recover, and stock losses may be offset.
“Over time, that negative correlation tends to emerge,” he said. “Not necessarily every day.”
Advisors also consider how long a bond is sensitive to changes in interest rates based on coupons, time to maturity, and yields paid throughout the period. In general, the longer a bond is, the more likely it is to be affected by rising interest rates.
“Currently, short-maturity, high-yielding bonds are attractive and we maintain them in this area,” added Harman of PRW Wealth Management.
Be careful when selling or withdrawing assets as they can cause long-term damage to your portfolio. “It’s a way to prey on a sequence of negative returns that you’ll eat alive in your retirement,” said Watson, Thrive Retirement Specialists.
However, he added that retirees may avoid beating nest eggs during periods of serious loss, with considerable cash buffers and access to home equity credit lines.
Of course, the exact amount you need depends on your monthly expenses and other sources of income such as social security and pensions.