It's not always easy to predict when a recession will strike. And to be clear, I'm not convinced we're headed for one in 2022.
While the COVID-19 outbreak has, in recent weeks, taken a drastic turn for the worse, the economy is still in a healthy place from a joblessness standpoint. And despite the upheaval the pandemic managed to cause in 2021, for the most part, the stock market didn't react too heavily to it.
But things could change in 2022. If the omicron variant fuels an even more extreme uptick in cases, restrictions and shutdowns could come into play, at least on a local level. And stocks could react -- and plunge -- following that news.
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It's for this reason that I'd rather be prepared for the possibility of a recession in 2022. And here are three steps I'm taking to gear up for one.
1. Making sure my emergency fund is intact
Generally speaking, I'm well stocked on emergency cash. I typically maintain a savings account balance with enough money to cover around a year's worth of living expenses, which is well beyond the standard three to six month recommendation.
At the same time, I've had to dip into my emergency fund recently to cover some unplanned bills, like home repairs. And so going into the new year, I'll be giving my savings a look and seeing if I'm comfortable with the amount of money I have sitting there. If not, I'll move some cash around to ensure that I have the protection I want.
Having a solid emergency fund could spare me from having to tap my portfolio at a time when investment values plummet. And that alone is worth the sad amount of interest I get on my savings right now.
2. Making certain I'm well diversified in my portfolio
A diverse portfolio could help you ride out a stock market downturn more easily. And so to gear up for a potential recession, I'll be assessing my investment mix and making sure it's as diverse as I'd like it to be.
Keep in mind that this is something I tend to do on a quarterly basis anyway. It's possible that some of my stocks may have gained or lost value over the past quarter, creating a scenario where I'm now more heavily loaded in a single market sector than I'd like to be. And so if I have to, I'll shift some investments around before stock values potentially fall.
3. Putting money into my brokerage account in case stocks go on sale
When a recession hits, stock prices tend to fall. That's bad news for people looking to liquidate investments. But it's good news for anyone looking to add to an existing portfolio.
It's the latter opportunity I want to position myself to capitalize on. If stocks become available at a discount, I'll want the chance to scoop them up on the cheap, and so I plan to put some cash into my brokerage account so I'm ready to pounce.
Hope for the best; prepare for the worst
A recession can be a frightening thing if you're not prepared. And while we don't know what the coming year has in store, it's hard to ignore the potential upheaval the COVID-19 outbreak might cause, especially with the omicron variant now being so prevalent.
But rather than worry about a recession, take steps like the ones above to help yourself get through one. Even if stock values and the economy hold steady in 2022, it still wouldn't hurt to have a solid emergency fund, a diverse portfolio, and cash at the ready for when stock-buying opportunities arise.
