U.S. stocks will fall sharply in 2022, but the outlook for 2023 does not look very optimistic. Although experts believe that the new year will not repeat the tragedy of 2008, investors must still prepare for an economic recession. For this reason, Barron’s ( Barron’s) proposes a year-end checklist as a reference for protecting personal assets.
Barron advises investors to start by increasing their cash cushion. According to financial experts, a liquid savings account holds three to six months’ worth of living expenses. Retirees should hold more cash, ideally with up to two years of withdrawals.
Because of the weak economy, Baron recommends boosting cash buffers, especially if you are in a company or industry that is at higher risk from a cooling economy. This helps keep you from racking up card debt or dipping into your retirement savings in case you lose your job or have other unexpected expenses.
High-yield savings accounts are a good option for stashing emergency cash, says Rob Williams, director of wealth management at Charles Schwab. Recession or no recession, the plan will work, as long as you keep the cash and invest for the long haul.
Another suggestion Baron made was to try to rebalance assets. This refers to adjusting the portfolio so that it returns to your allocation target, such as six stocks and four bonds.
If there is no adjustment throughout this year, the stock position in the investment group may be slightly higher after the stock market plummeted. Baron pointed out that it is advisable to sell some rising targets (winners) at the end of the year, and then use the funds to buy more falling targets (losers), so that the portfolio returns to the target.
There is no obvious winner or loser in this year’s double kill of stocks and bonds, but it is still worth rebalancing. Christine Benz, Personal Financial Director of Morningstar, said that although the US stock market has fallen by 20% this year, it has still risen in the past five years, which means that the investment group as a whole is still biased towards stocks, which may not be noticed by many people.
Beth Handwerker, real estate and financial planner at James Investment, said that now may be a good time to buy bonds, because high-quality bonds usually have outstanding performance in recessions, such as U.S. Treasuries, which jumped to the bright spot after the financial tsunami broke out in 2008. She recommends keeping short-term, high-quality bonds and avoiding high-yield junk bonds.