There's Gonna Be A Recession, But It's Nothing To Be Afraid Of If You're Prepared, Says This Financial Advisor

Editor’s note: The external, unpaid contributor who authored this story is no longer part of Benzinga’s contributor network. This content is under review for accuracy.

Geopolitical tensions, energy market imbalances, a persistent rise in inflation and growing interest rates have had many investors and economists concerned about the looming 2023 recession.

As countries worldwide slip into financial disbalance one by one, discussions about the length of the current recession cycle and how long it will take to recover from it have been the centerpiece of discussion among many financial experts and professionals.

However, according to financial advisor Lucas Noble, a recession is not necessarily a cause for panic. “When people hear the word recession, they can’t help but feel afraid, and I don’t blame them,” Noble says. “Yet, one way or another, a recession will happen. It’s part of an economy’s regular cycles.”

An economic cycle refers to the fluctuating state of a market-based economy from periods of expansion to contraction. Factors that shape the economy include global economic conditions, trade balances, inflation rates, and exchange rates.

“The economy goes through four stages,” Noble explains. “While it’s ideal for the economy to keep on expanding, once it reaches the second stage - the peak - it causes an imbalance that only a period of contraction, or as we call it recession, can remedy.”

A contraction typically occurs when the economy reaches its peak and continues until the trough stage, after which the economy recovers gradually. Once a cycle is complete, it continues all over again.

“That’s what’s happening right now. I’d argue that we’ve been in a recession since last year, actually,” Noble says. “Of course, there’s no way of calculating how long each stage will last, but it’s extremely important for people to know that there are ways to prepare themselves for economic declines.”

For investors, knowing which risk factors to watch out for and how to position one’s portfolio is crucial to optimizing performance in a tough market. One way to stabilize the portfolio, for example, is by diversifying it according to one’s investment goals. As for the risks, studying the market and paying close attention to its oscillations can provide investors with a cushion to soften the blow once recession sets it.

“High interest rates and inflation are major contributors to the current recession,” Noble says. “Inflation is somewhat inevitable, but there are ways to get through it.”

According to Noble, maintaining stock exposure, or rather reducing exposure to volatile stocks and increasing cash holdings, is one way to hedge inflation. Moreover, the recession isn’t necessarily about losing money but about the fact stocks are going down.

“They have to come back up,” Lucas Noble emphasizes. “A problem occurs when someone pulls their money out while they’re down.”

Younger investors tend to panic when the economy enters its contraction stage, and many scramble to sell their stocks. On the other hand, seasoned investors advise that market-down periods are the best time to keep investing and expanding your portfolio.

“It’s an opportunity to buy shares of stock at a lower price,” Mr. Noble explains. “This means you can potentially earn a higher return on your investment once the market recovers.”

Still, it isn’t unreasonable to feel worried when facing potential losses. Rather than succumbing to fear, the best strategy for any investor would be to stay on course and be consistent with the amount of investment money by applying strategies like dollar-cost averaging that help people invest in a down market sensibly.

As Mr. Noble concludes, “With the right preparation, strategy, and sticking to your financial plan, investors can weather the storm and even find plenty of opportunities for growth. The key is not letting fear hold you back from investing in your future.”