If you've been following the market, you're no doubt aware that 2017 has been quite the year for investors. Things have been so good, in fact, that more than one-third of Americans are waiting for the bottom to fall out. Specifically, 36% feel that the next major recession could hit as early as 2018. Yikes.
Of course, there's no telling exactly when the next recession will come to be, but it's bound to happen eventually. That's just the cyclical nature of the economy. So the best the rest of us can do is know how to prepare.
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Expect your investments to take a hit
When we hear the word "recession," it's easy to imagine stock prices plummeting before our eyes. And while that's a frightening notion in theory, it doesn't have to be one in practice. The reason? If you're investing for the long haul, a recession -- even a lengthy one -- probably won't matter, because the stock market has a strong history of recovering from even the harshest of blows. On the other hand, if you're close to retirement, you may want to shift some investments into safer vehicles, like bonds or even cash -- but only if you're serious about retiring in the next year or so, and don't have another solid source of income you can fall back on.
Remember, the only way to lose money on investments is to sell them at a loss. If a recession does hit in the near future, and your portfolio loses, say, 20% of its value, that's only a loss on paper until you actually cash out your impacted investments. So if you're in a situation where you're planning to retire shortly, but expect to have enough income between your Social Security benefits and anticipated part-time work to cover your living expenses, then you can, for the most part, leave your investments alone.
Beef up your emergency savings
The great thing about having plenty of cash on hand is that it's guaranteed principal. Of course, the relative value of a dollar can drop, but a dollar is still a dollar, no matter how poorly the market is performing. But more importantly, cash buys you the flexibility to leave your investments alone while the market is busy taking a beating -- and that's reason enough to boost your emergency fund before things start to go south.
We just talked about the fact that the only way to lose money on investments is to actually sell them off at a loss. So if you have enough cash on hand to support yourself without having to tap that portfolio, you'll give yourself ample time to ride out the next downturn that comes our way.