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Aequus Partners Services

Biggest Mistakes People Make in a Recession

Whether or not we are experiencing a true recession or a temporary economic slowdown as a result of the COVID-19 pandemic is a matter of semantics.   The reality is that many Americans have had their lives greatly disrupted.  We are working differently.  Parenting differently.  Children are being school differently. Socializing differently.  Everything is different.  However, as we plow our way through these challenging economic times, we need to be proactive in our planning, not reactionary.   I will share with you five mistakes that are common regardless of the catalyst for this – or any – economic slowdown.

Your Emergency Fund is Not A Savings Account!

In our practice, we encourage our clients to stockpile about 3-6 months of living expenses in an emergency fund.

But, let us be very clear: an emergency fund is not meant to serve as a savings account.  You have a savings account for that.   The emergency fund has a very specific purpose in your financial plan: it serves as a buffer, or bridge, for when times get tough.  It helps ensure that if or when you face adverse economic realities, you do not need to dip into your saving and investment accounts resulting in a potentially compounding negative impact on your financial future.

This is true for any investor at any stage of their plan.  For clients in their accumulation stage when they are still working, this fund allows an individual or family to remain on course if they face an economic catastrophe like losing a job or facing an unexpected medical emergency. For clients in the decumulation stage of their plan, in retirement, the fund ensures that you never need to sell an investment or alter your distribution schedule during down markets to pay a bill or to maintain your lifestyle.

Either way, do not be afraid to utilize your emergency fund to help bridge your expenses during strenuous or contracting financial times.   It should be the first account your draw from to cover living expenses, unexpected costs, and to simply help pay the bills when your income stream is minimized.

Don’t Panic Sell – But If You Did…Buy Back In

We all know that you should buy low and sell high.  However, most people fueled by their emotions by high chasing stock prices and sell low as loss aversion kicks in. We find that when most individuals and families are introduced to our practice inevitably from other firms or advisors, they don’t have an official investment policy statement, or a clear buy and sell discipline.   If their advisor did, they cannot articulate it. The greatest risk to the success of any financial plan is you, or more precisely, your emotional responses to market volatility.  

You simply cannot time a market.  Just like you cannot accurately time a sell-off in the market, you cannot with any sense of accuracy time the rebound.  There are a wide range of emotions at play.  Those emotions cause you to sell low, and also prevent you from buying in and benefiting from the rebound.  

If you sold during the rapid and violent sell-off in the first quarter of this year, have you bought back in yet?  If you haven’t, do you and your advisor have a plan for doing so?  You must be in the market to benefit from the market.  Money on the sidelines is simply lost opportunity.

Do Not Stop Funding Your Retirement Plan

Many people have experienced pay cuts over the last six months or so.  Even though you might be seeing less money in your paycheck, do not stop funding your 401K plan.   One of the most powerful aspects of a company’s  401K plan – besides employer contributions -is the consistent investing through all markets enabling you to purchase into the plan at lower prices during sell-offs. Time is on your side.  Your money will inevitably compound. In essence, it forces you to cost average into your retirement investments. 

If you doubt that a year break in funding that 401K will have much of an impact on your financial future, have your advisor run the projections for you side by side.  The results will be staggering.   Take advantage of volatile markets by remaining steadfast in your 401K savings.  Stay true to them now, and they will say true to you when you need them most: during retirement.

What Have you Really Lost?

One of the greatest misconceptions for investing and financial planning is the definition of loss.  When you see a stock dropping in price, that is not a loss.  It is simply volatility.   A true loss is when something you own becomes intrinsically worth less, or completely worthless.  That is a loss.  Price fluctuations are volatility; the result of the price being determined in the open marketplace by buyers and sellers.  

What does this mean for you? During times of economic contraction, volatility in the market is a likely result.   You need an investment plan.  If you have a plan, everything you own in your portfolios serves a purpose, like how every piece of an orchestra has its own role.   If nothing has changed in the expectations and valuations of the company, the price gyrations should not unnerve you.  In fact, not only is volatility not a loss, it is an opportunity.   If you thought  Company A was worth $100 a share, for example, and now the market is offering the same share in the same company for $90, that might very well be an opportunity to buy something you like at a lower cost.  That is an opportunity not a loss.

Know Your Numbers

Budgets.   So bland.   Many people feel intimidated about creating a budget and sticking to it.  The accountability is daunting.  But, especially during times like these, maintaining a budget, checking it and sticking to it can greatly improve your financial stability during unstable times.  Budgets are critical.  If you can undertake the exercise honestly, you will even surprise yourself by what you are spending your money on.  During the last six months, consumers have indulged in online shopping at incredible levels.    It is easy to lose track of those Amazon purchases.   Now is the time to assess and reign in if necessary.

Lucky for you, you do not need to create spreadsheets with endless formulas.   Your financial advisor should have the means to help you create a budget and monitor it. 

BONUS: App Subscriptions

Like most people, you probably have a slew of apps you subscribe to.  Let me speak from personal experience.   

About a month or two into quarantine, I went through all my online subscriptions.  It was eye opening.   Over the years I accumulated quite the staple of $5.99 reoccurring charges.   I began sorting through them and eliminating the apps or services I no longer used or found necessary.  Apps become like gym memberships: you buy it and eventually forget about it.  Go through your app subscriptions and slim them down if you can.   Through that process you will pick up some savings here and there; funds that can be better allocated. 




Securities offered through Kestra Investment Services, LLC, (Kestra IS), member FINRA/SIPC. Investment Advisory Services offered through Kestra Advisory Services, LLC, (Kestra AS) an affiliate of Kestra IS. Aequus Partners Financial Planning is not affiliated with Kestra IS or Kestra AS.

This site is published for residents of the United States only. Registered Representatives of Kestra Investment Services, LLC and Investment Advisor Representatives of Kestra Advisory Services, LLC, may only conduct business with residents of the states and jurisdictions in which they are properly registered. Therefore, a response to a request for information may be delayed. Not all of the products and services referenced on this site are available in every state and through every representative or advisor listed. Neither Kestra IS or Kestra AS provides legal or tax advice. For additional information, please contact our Compliance department at 737-443-2582.



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