Smart investing during a recession

It was 40 years ago last week that BusinessWeek magazine proclaimed the end of stock investments. Stock markets have gone up and gone down since then. But mostly up.

• S&P 500 closed at
  • 42 on Aug. 13, 1979
  • 2,926.32 on Aug. 13, 2019
• Stock dividends are up:
  • $6 in 1979
  • $56 in 2019
  • Inflation has raised prices about 3.5 times, making this dividend look great by comparison.

BusinessWeek clearly got their prediction wrong, but they may have sold more magazines that week, making it a win for them. That’s because financial media is focused on keeping news exciting so people stay tuned through the commercial. As a result, the media focus is the next crisis with topics like:

• Is this the big one?
• Is this the end of the world as we know it?

Even with the supposed next recession bearing down on us, it’s a great time to invest in stocks. I’m an optimist. I believe in this country and in the American economy. To understand why I’m so optimistic, I think it’s helpful to look at the last 40 years.

Fundamentally, the U.S. economy continues to grow. Not in a straight line, but it grows over time. As a result, stock in great American companies grow in value over time. Since 1979 the U.S. real GDP per capita has grown:

• $30,166 in 1979
• $54,541 in 2018

How to invest during a recession

Human nature, helped along by the financial media, likes to extrapolate. Humans love to take what they think they see today and amplify it forward. They think:

• This is how it is
• This is how it will be tomorrow
• This is what you can expect forever

Psychologists call this recency bias. It’s mostly wrong. Wisdom and perspective can help make better choices that aren’t colored by recency bias.

Financial advice during a recession

Even if I’ve convinced you that the coming recession is not the end of times, you probably have questions about what to do next.

If you have an important financial goal, like being able to stop working for money and start working for fun, you might want an experienced, professionally trained, fiduciary, fee-only financial planner helping you create an effective strategy. It’s a big shift. You are talking about the transition from accumulating wealth to consuming wealth. And you want it to work for as long as you live, maybe 40 years past retirement.

A great place to start looking for the right planner is to talk with a couple CERTIFIED FINANCIAL PLANNER™ professionals.

To find a CFP® professional near you, start your search here.

As you visit with financial planners, I suggest a couple things to check:

• Is the advisor always the client’s advocate – a fiduciary advisor?
• Is the advisor only paid by clients, not any financial product manufacturer or distribution network? That would be a fee-only advisor.

These two points help assure that you are working with a professional who is committed to your best interest at all times. It seems sort of obvious to me that a professional would work in this way, but it’s not automatic.

A fiduciary, fee-only, CFP® professional can help you make great retirement income choices and develop a comprehensive financial plan that is driven by your goals and priorities and addresses all aspects of your financial life. With a big-picture approach, you will be better prepared to understand your options at every step along the way.

Yes, I am a CFP® professional. I’m always a fiduciary and I only work on a fee basis. And yes, I’m still taking on a few great families to be part of my financial planning practice.

If this article has you thinking about your own circumstances, contact my office at rdunn@dunncreekadvisors.com. I am always happy to meet with people who are working on their retirement plans. Dunncreek Advisors does not provide legal or tax advice, nor is this article intended to do so.