A Guide for Women Investors in a Recessionary Environment
Are we headed for a recession? We hear that question a lot lately and see three possible scenarios that could lead to an economic downturn in late 2023 or 2024. The degree of pain felt by Americans and the U.S. economy at large will depend on which scenario plays out.
The first scenario involves the continued inversion of the yield curve, where shorter-term bond yields are higher than longer-term bond yields. We are seeing the problems this creates with recent bank failures. Banks are facing reduced profits, more risk and have tightened their lending policies. Noen of this helps the economy. Acceleration of this trend could ultimately be the catalyst for a recession. If this scenario plays out, the economic downturn is likely to be felt more acutely, with a significant impact on jobs, housing, and consumer spending.
The second scenario is a more optimistic one: the Federal Reserve brings in inflation without causing extreme damage to jobs. This approach would be focused on promoting growth while managing inflation rates. If successful, most Americans could manage modestly well through the recession, with less of an impact on jobs and consumer spending. While there will be pain, this scenario is the least severe of our three scenarios.
The third and worst scenario is if the Federal Reserve continues to aggressively raise interest rates through 2023, which could lead to a painful 2024 economic situation for many people. This scenario would lead to a significant contraction of the economy, job losses and consumer spending cutbacks. A recession will be felt acutely, with noticeable impact on all aspects of the economy.
Predicting the future of the economy is notoriously difficult, and any number of factors can influence the direction it takes. However, the three scenarios presented above give us an idea of what to expect and how to prepare.
Investors concerned about the potential for an economic downturn in 2023 or 2024 can position investments to guard against losses while growing wealth. We advocate for short-term Treasury bonds and buffered stocks across all the 3 scenarios outlined above.
Short-term Treasury bonds preserve capital while also earning much higher yields than even a year ago. Buffered stocks, either via ETFs or by selling call options, provide a degree of downside protection against market volatility while still allowing for the upside participation.
In addition to smart asset allocation, it is important to have robust sell rules to avoid significant losses. This means having a plan in place for when fold investments to guard against losses (and provide some peace of mind).
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