Recession confessions, and what to look for as an investor

The word “recession” hit peak popularity on Google in June. While we’re not officially in a recession, slowing GDP has piqued people’s interest in the topic. Today, we’re discussing facts about recessions and what you, a long-term investor, should know.

We’re also talking about:

• Building crypto pies on M1
• 9 steps for a mid-year financial review
• Stocks, or as Jason Zweig calls them, socks

RECESSION CONFESSIONS

Analysts and pundits are debating whether a recession is coming and how severe it could be. With all this speculation, we want to share facts about the history of recessions so you can better understand what may or may not happen. Just remember, history is not indicative of future results, and your investment decisions are ultimately up to you.

What determines a recession?

A recession is when an economy experiences two consecutive quarters of declining gross domestic product (GDP). Factors such as rising levels of unemployment, falling consumer sales, and a failing supply chain can spark a prolonged slump.

Recession facts:

• Since the Great Depression, there have been a total of 14 recessions—an average of one about every six years.
• Recessions after World War II have lasted an average of 11.1 months.
• The longest post-World War II recession was the 2008 financial crisis. It occurred from December 2007 to June 2009, lasting a total of 18 months.

The possibility of a recession in 2022

The Federal Reserve’s rate hikes aimed at combating inflation (plus plunging consumer confidence) pose significant threats to the GDP. But market downturns and recessions are part of the business cycle. They’re the unavoidable byproduct of the expansion and contraction of a nation’s economy.

For investors near retirement, the next few years could see diminishing returns. For long-term investors, market dips often reduce the price of stocks — which is great if you invest using dollar-cost averaging or another long-term strategy.

The effects of a recession ultimately come down to an investor’s personal situation and perspective. In other words, it’s not simply good or bad. It depends on your point of view.

Here’s how we think about market volatility and corrections>>

This week, take a moment to focus on a new perspective:

“I like to say that the problem with stocks is that they contain the letter T. If they were called socks instead, people would treat a 20% decline in price not as a selloff but as a sale.

When socks get 20% cheaper, you don’t rush to get rid of the ones you already own; you check your sock drawer to see if you need a few more pairs. Young investors should treat stocks the same way.”

WSJ columnist, Jason Zweig

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