What you can do if inflation leads to a recession


By David Wilkening, Contributing Writer

Setbacks in the stock market during a recession are usually temporary, so investors should stick to their long-term plans and not pull money out of the market.
Setbacks in the stock market during a recession are usually temporary, so investors should stick to their long-term plans and not pull money out of the market.

REGION – Inflation is on the minds of just about everyone these days. But could it get even worse? Is a recession the next nightmare of 2023?

And while economic predictors are mixed on whether the sequence of events will happen this year, what does it mean for older people? And more importantly, what can they do about it?

Hard to predict

Brad M. Weafer, Chief Investment Officer for Boston Financial Management, is among those who appreciate how difficult it is to predict recessions.

“It’s very hard to predict the timing, magnitude and whether or not we’ll have a recession or not,” he admitted. But on the other hand, there are many hints and even predictions of the next negative economic development.

“Almost 70 percent of economists predicted a recession at some point in 2023,” he said. He was referring to a Bloomberg study finding last year that the likelihood of a U.S. recession had increased this year. It blamed the increased probability to a series of Federal Reserve interest rate hikes that escalated the “ongoing fears of a stagnating economy,” according to polled economists.

The recession probability had more than doubled over the last six months, the survey showed.

So what can you do when it’s not just inflation but a recession as well?

Staying the course

For those with investments, Weafer’s advice applies to both older and younger investors: Stick to a long-term plan.

“When we see the odds of a recession rise, we tend to be extra vigilant in our stock selection, choosing companies we expect will have resilient profits,” said Weafer. “These kinds of ‘high quality’ companies carry a number of similar characteristics including strong profitability, low debt levels, less cyclicality, and strong and durable cash flow.”

And there are other considerations specifically for older people. 

“I might add this thought specifically for seniors. Many older clients may have less ability or desire to withstand the stock market volatility that generally corresponds with economic recessions,” Weafer explained. “This lower risk tolerance and lower exposure to risk assets is likely prudent. It may suggest a higher allocation to fixed income assets or alternative asset classes and investment strategies like trend following, as an example.”

The ominous word “recession” has various meanings but the National Bureau of Economic Research (NBER) defines it as a significant decline in economic activity that’s spread across the economy and that lasts more than a few months.

In everyday terms, a recession is when the economy goes down in the dumps for six months to a year. This usually means the stock market tanks, companies lose money (or go bankrupt), and people lose jobs. Key takeaways to keep in mind during all recessions (from Investopedia):

  • Riskier assets like stocks and high-yield bonds tend to lose value in a recession, while gold and U.S. Treasuries appreciate. 
  • Shares of large companies with ample, steady cash flows and dividends tend to outperform economically sensitive stocks in downturns.
  • Investors can’t hope to time a recession reliably, but diversification and measured steps to control risk can help preserve capital and position portfolios to profit from a recovery.

Considerations for stock investors 

If you want to continue to invest in the stock market, do so intelligently. That means less volatile and usually sailing a safer course―even if it means less risk will equal lower investment returns.

 If you’re looking for relatively safe investments, Weafer and others recommend government bonds―particularly for long-term investments. 

Many advisors echo his contention that investments like the stock market should be viewed as long-term, pointing out that setbacks are usually temporary with comebacks in the future. “The worst thing people can do is they get nervous and pull money out of the market,” said Jordan Rippy, a personal finance expert and accounting professor at Johns Hopkins Carey Business School. “Most people should be invested in the market for the long term.” 

But a less conventional and often less recognized option: blue-chip art. Yes, it’s generally seen as a hobby of wealthy art patrons. That changed in 2012 with new regulations that gave flexibility for art work to be seen as real assets and opened up a new mass market. It now has the lowest correlation to equities of any major asset class, according to Citi. This means if the market dips, this asset doesn’t necessarily go down with it. It’s been increasingly recognized by mainstream outlets like the Wall Street Journal as one of the latest “hot” investments. 

Advice for non-investors

But what to do if you have no investments and are living off Social Security and/or pensions and other generally fixed incomes?

Some experts say one of the areas you might capitalize on is an asset common to seniors: Home equity, either for a loan or even a sale. The housing market nationally has been on a roll, with year-to-year prices up almost 20 percent nationally, according to S&P CoreLogic Case Shiller. Mortgage rates are also on the rise, which has dampened demand. But on the other hand, cash investors are still buying.

Another down-to-earth suggestion: full or part-time work. Recessions unfortunately mean layoffs, so there’s a new market for many different skills. For retirees, that means brushing off old skills or perhaps learning similar or even new ones.

Reducing spending is another tactic. Experts suggest areas to look for first include what might usually be called discretionary spending. Try regulars such as entertainment services such as cable and cell phones. Also, look for discounts on cable, cell phone and other bills.

“Bill negotiation services are a way to reduce your costs, which is a simple way to combat inflation,” said Sam Zimmerman, CEO of Sagewell Financial, a Cambridge-based banking company geared toward seniors. 

Another common suggestion: you want to pay off credit card debt, or any kind of debt with a variable interest rate―right away. That’s because those interest rates will rise and add more debt.

“There is no benefit at all to carrying credit card debt―it is a perpetual drain on your personal economy,” Rippy said.

Get creative

A rule-of-thumb if you are living on a fixed income that does not change: Get creative.

Often, that is nothing more than looking for common everyday savings. Take advantage of senior discounts, for example. They’re everywhere but you often have to be aware of them to take advantage.

Here’s something else to keep in mind. Since 1854, the US has had 35 recessions. If there’s a new one, investors and the rest of us can only hope it lasts for the average time of 17 months or less.



I bonds are an investment that benefits from inflation (fiftyplusadvocate.com)

Tips on coping with inflation (fiftyplusadvocate.com)