For months, we’ve been holed-up, together-alone, alternately watching Netflix and daily briefings about the pandemic. We worry what the “new normal” is going to look like, because the “now normal” just sucks. Fear has become the foundation emotion behind all our thoughts, constantly lurking in the shadows, as we worry about our families, our health and our money.

To the latter, many investors are looking for a way out from under the increasingly volatile and confusing stock market. One day, bad news can drive it down to depths we’ve never experienced in a one day period, but then inexplicably soars on news that is equally bad, or worse. This is a hard market to understand, to the extent we can truly understand markets at all.

Many investors are considering whether they should be in or out. That’s a personal choice, and some may be wise to consider getting out based on personal factors such as age, health, income and available resources.

But for most investors, especially younger ones who have yet to retire, to be in or out may not be the right question. The more valid question is, “Is my allocation right?”

Surely, the pandemic has pushed us into a global recession, with some countries and some investors faring better than others. But if you are considering making changes to your portfolio based on the day’s headlines, consider factors that are important in any recession, or in calmer times, for that matter.

… investors are considering whether they should be in or out…

As we highlighted in previous posts about recessions, now is not the time to panic. It is time to react calmly and thoughtfully and prepare for the coming changes, whether they be up, down or sideways.

Tune up your financial plan to anticipate and prepare for all phases of the business cycle. Yes, we will resume the normal phases in the future, and as always, we don’t know when they will occur or the length of their duration. Financial planning is an all weather process, and must include short- and long-term solutions, including how to deal with eventual economic downturns. You should always have a plan, but if you don’t, getting a plan together now is the smartest move of all. 

Reduce risk in your portfolio. No, don’t dump everything. Look at your holdings and see where you can trim off some market risk, maybe even at some profit. Allocating away from growth stocks and toward dividend stocks is one way to stay invested and reduce risk. Remember, you don’t go broke taking profits, so when markets are at historic highs, take them, but when we have decidedly gone bearish, be as selective in your sells as you are in any new buys. And what if the market goes higher after you sell? Who cares? We aren’t fortune tellers, take the profit, and live to reinvest another day.

Reduce your return expectations. Interest rates may go down even more, so returns on cash accounts will suck. That’s okay. You will not lose principal, and you will be protecting liquid assets that can be reinvested into the market at lower prices throughout and after its correction. It’s about winning by not losing.

Increase cash in the bank. Having liquid reserves, cash, means covering emergencies and taking advantage of opportunities. Cash means capitalizing on opportunities that appear as the markets decline. Be in a good cash position. Sure, the rates will suck, but cash is queen in a recession.

Be selective in new Buys. There is always opportunity at every level of the DJIA or S&P 500, both highs and lows. It’s hard to see when our judgement is clouded by headlines. But good companies are good companies, regardless of a declining share price. Great products and services, strong management, lots of cash and minimal debt will pull the good companies out of the pandemic unscathed. Learn to access value, and better yet, stay with large-cap indices in the form of exchange traded funds, like SPDR S&P 500 ETF Trust (Ticker: SPY). Or even specific sectors of the broad market.

Short term treasury bond rates suck, but they are safe. Consider short maturities if you don’t need all that cash laying around.

Consider hard assets. Precious metals like gold and silver tend to do well in recessionary times. They can provide a good hedge to the rest of your financial assets in declining markets. Gold and silver coins, rounds and bars are easy to buy, easy to store, and easy to sell.

Cut dumb spending. You can live without sitting around all morning at Starbucks, as we have learned in the past few months. As God as my witness, you will live! A Better choice: McDonald’s drive-through, any size for a buck. Best: home brew. Get it? Every dumb spend has a series of smart alternative solutions, and the silver lining to sequestering has forced us to focus on necessary spending and how we can live without frills. Cut dumb spending habits and replace them with new smart habits. Get yourself on a budget, once and for all.

Cut dumb debt. That means credit cards. Revolving credit is dumb. Khakis on credit is a dumb idea.

Reduce or eliminate leveraged debt like a mortgage which helps you finance an appreciating asset, like your home. Khakis don’t appreciate in value. Target adjustable rate loans for refinancing, whose rates seem to climb even when rates are falling. How do they do that? Refinance old leveraged debt (mortgages and credit lines) to new lower fixed-rate debt. Now is a great time to do that (4/23/20) as mortgage and re-fi rates have never been lower.

If you are fortunate enough to be working, save more money. You are sitting at home, this is the perfect opportunity to start a side hustle. Employers get very choosy in a recession, and the pandemic has really forced their hand. We are now living in times of almost unprecedented employment levels, so unless you’ve continually been “employee of the month,” or playing squash with the boss, watch your backside. Trade your TV time for a side hustle, and be your own boss.

Because of COVID-19, we are all in the same boat, navigating the same choppy waters, but getting to the dock in one piece is all up to you.

-Another bite-sized economic lesson from Just Your Average Joe!